NIMA POLICY PAPER Series # 005 June 2019 PAKISTAN’S SEABORNE TRADE: ESTIMATION OF FREIGHT BILL 2018 Author: Syed Khawar Ali Shah Kanwar Muhammad Javed Iqbal Ali Abbas First Edition National Institute of Maritime Affairs (NIMA) Bahria University, Pakistan Category: Policy Paper Title: Pakistan’s Seaborne Trade: Estimation of Freight Bill 2018 Authors: Syed Khawar Ali Shah* Kanwar Muhammad Javed Iqbal** Ali Abbas*** Reviewed by: Khurram Mirza, Executive Director Special Projects, PNSC, Karachi Asaf Humayun, Vice Admiral (Retd) and Former DG NCMPR, Karachi Ubaid Ullah, Commodore (Retd) and Former Executive Director, PNSC, Karachi First Edition: June 2019 Property Rights: National Institute of Maritime Affairs, Islamabad * Vice Admiral (R) and Director General at National Institute of Maritime Affairs (NIMA) reachable at [email protected] ** Senior Researcher at National Institute of Maritime Affairs (NIMA) reachable at [email protected] *** Commodore (R) and Director at NCMPR Karachi reachable at [email protected] All rights reserved. No part of this Policy Paper may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or information storage and retrieval system, without prior written permission of the publisher. A publication of the National Institute of Maritime Affairs (NIMA) - an independent and non-profit think tank. In the Policy Paper / Brief series, the NIMA publishes solicited / unsolicited policy advice on practical policy issues in the sphere of maritime affairs and sustainable development. The papers are written by NIMA’s regular or affiliated staff and are meant to provide clear-cut policy outlines which would promote peace, prosperity and sustainable development. National Institute of Maritime Affairs (NIMA) is a constituent unit of Bahria University. The establishment of NIMA under the aegis of Bahria University was conceived in order to meet the objectives of National Maritime Policy. The NIMA is envisioned to serve as a focal point in Pakistan, as well as in the region for the promotion of maritime sector by defining and translating the debates of the region into peace, prosperity and sustainable development. Contact Information: NIMA – National Institute of Maritime Affairs Bahria University, Head Office, Islamabad - Pakistan Tel: +92 51 9261968 Fax: +92 51 9261968 Email: [email protected] URL: https://www.bahria.edu.pk/nima Contents ACRONYMS ......................................................................................................................................... ii 1. INTRODUCTION .......................................................................................................................... 1 2. METHODOLOGY ......................................................................................................................... 1 3. FREIGHT ESTIMTATION ........................................................................................................... 2 3.1 Freight from PNSC’s Import Data Source ........................................................................ 2 3.2 Freight from Other Import Data except PNSC Source ................................................... 3 3.3 Freight from Non-containerized Bulk and General Export Data ................................... 3 3.4 Freight from Containers’ Data ............................................................................................ 4 3.4.1 Freight from Containers’ Import Data ........................................................................ 4 3.4.2 Freight from Container’s Export Data ........................................................................ 5 3.5 Consolidated Seaborne Freight Bill ................................................................................... 6 4. FINDING AND CONCLUSION ................................................................................................... 7 5. RECOMMENDATIONS ............................................................................................................... 7 BIBLIOGRAPHY ................................................................................................................................... 8 i ACRONYMS C&F Cost and Freight CIF Cost, Insurance and Freight FE Foreign Exchange FOB Free On Board FY Fiscal Year GoE Government of Ethiopia HSD High Speed Diesel KICT Karachi International Container Terminal KPT Karachi Port Trust LNG Liquefied Natural Gas LPG Liquefied Petroleum Gas MOGAS Motor Vehicle Gasoline NRL National Refinery Limited OMC Oil Marketing Company PARCO Pak Arab Refinery Ltd PNSC Pakistan National Shipping Corporation PQA Port Qasim Authority PRL Pakistan Refinery Limited PSAA Pakistan Shipping Agents Association PSO Pakistan State Oil UNCTAD The United Nations Conference on Trade and Development US$ United States of America Dollars WeBOC Web Based One Customs (WeBOC) Pakistan ii 1. INTRODUCTION Pakistan’s trade during the period under review i.e. 2018 was approximately 84 Billion US Dollars. Pakistan’s over 90% trade by volume is through Sea. Trade also occurred through land borders with China, Afghanistan, India and Iran by Trucking and Rail. Trade which is of small volume but of high value products and some perishable items like fruits is mostly through Air. The trade can be measured in volume (i.e. tonnage) or by value. Under the provision of United Nations Liner Code 1974, Pakistani Ships can lift at least 40% of import/export of Pakistan by volume, this allowable percentage can go up to 60%. Trade and shipping go hand in hand, this rule was introduced by the United Nations to improve trade of the developing countries as at that time most of the shipping lines were owned by rich countries and they could manipulate trade accordingly. Pakistan has major balance of payment problem, the country is short of dollars with outflows of Dollars for imports, debt servicing and import of services being much more than the country’s earning ability of dollars. Therefore, there is a need to save on dollars and one of the major import service is freight paid to foreign shipping, hence need to calculate freight on annual basis. This visibility will help the decision makers to plan better for accruing advantage to Pakistan and leading to increase in our National fleet size. With an assured long term import cargo of Crude oil, refined petroleum, LNG, LPG, Coal and Edible oil worth over 18 Billion dollars; the government has leverage to mandate the cargoes to be on Free On Board (FOB) basis, this entails that buyer i.e., Government of Pakistan will have the responsibility to pick cargo from designated port, thus Cargo can be lifted on Pakistani flag vessels. Pakistan National Shipping Corporation (PNSC) is transporting total crude imports of Pakistan. However, with PSO buying refined products and LNG at Cost and Freight (CF) basis, the seller arranges for shipping to Karachi and therefore the advantage goes to Foreign Shipping. Many developing governments’ world over, such as Ethiopia (FOB Directive, 2000), have tried to assist growth of National Shipping by requiring all imports to be on own Flagged vessels. The annual statistics issued by the Government of Pakistan or any other National agency does not depict the Foreign Exchange (FE) spent on Freight in a whole- some manner. The trade figures are issued on value basis of the imports and exports, therefore there was a requirement to look at the data in tonnages and to verify more precisely the money spent on freight charges. 2. METHODOLOGY This research study has examined in depth the topic of importance and estimated the seaborne freight by scrutinizing the primary and secondary sources of data / information / available freight estimation methods, and taking into account all relevant variables of import and export data for seaborne trade during the calendar year 2018. The primary sources include Semi-structured Key Informant Interviews of responsible position holders of State Bank, Pakistan Statistical Bureau, PNSC, Foreign shipping companies, Pakistan International Freight 1 Forwarders Association (PIFFA), PSO, KPT, PQA, Pakistan Shipping Agents Association (PSAA) and Subject Matter Experts. State Bank has a requirement that all shipping companies submit the amount spent on freight to State Bank, prior approval is accorded to remit Foreign Exchange. However, instead of tabulating the actual remitted amounts, State Bank of Pakistan’s Statistical Branch has arrived at a Statistical formula by sampling freight expenses of around 1000 importers and their method of calculation of freight is a fixed 2.7% of the value of the total import and export trade of the country. They issue this for a period of 3 years. According to State Bank of Pakistan’s statistical formula, total freight bill was 2.7% of total US$ 84 Billions trade i.e.; US$ 2.26 Billion that includes Afghan Land Trade and Air import/export. The air based trade has an approximate figure of 350,000 tons for which air freight is about US$ 1 billion that further limits the State Bank’s estimated Sea freight component to US$ 1.26 Billion. Pakistan’s Trade Data from websites of Web Based One Customs (WeBOC) Pakistan and Pakistan Statistical Bureau was also scrutinized in detail to assess the trade patterns. It was difficult to gather freight data specially related to imports on Cost and freight basis as PSO and private importers were reluctant to share the exact figures for freight. Worldwide freight rates were taken