Merchant Marine Policy of Pakistan Needs Extensive Review for Economic Enhancement


Merchant fleet of a country plays an important role to boost its economy especially earning of foreign exchange, provision food security, protection of strategic cargo especially during tension period and hostilities. Ships are floating storage which add to the national storage capacity and reduce on dependency on foreign carriers. The developed maritime nations have large merchant fleet and shipping rules attractive for investment.  Now even land locked states have shipping companies. The Geneva based private ship owned company, Mediterranean Shipping Company (MSC), in 2021-2022 earned a profit of $24 billion. It is owned principally by an Italian family which moved to Geneva as they found its laws favorable. In Pakistan, after independence the business of shipping was managed by private ship owners, who built the national fleet from scratch. The National Shipping Corporation (NSC) and Pakistan Shipping Corporation (PSC) were formed in 1960s , these had about 71 ships. After 1971, the strength reduced to 57 ships. The PNSC, a state-owned flag carrier came into existence by merger of NSC and PSC in 1979. It currently owns and operates a fleet of 11 vessels with a total tonnage of 831,711(0.832 million dead weight, DWT). These include 6 oil tankers, and 5 bulk carriers.   Although the sea trade has increased over the years but hardly any merchant ship has been registered in Pakistan by the private ship owners since nationalization in 1974. In accordance with the United Nations Conference on Trade and Development (UNCTAD) 1964, ships of Pakistan can lift  40 percent of national cargo. This rule was incorporated to improve trade of developing countries as at that time most of the shipping lines were owned by rich countries.

Pakistan’s annual trade in 2001 when the Merchant Marine Policy was promulgated was 39 million tons, and the freight bill US$ 1.5, billions while the share of the National carrier averaged 2 million tons, mere 5%.  A colossal drain on the limited / depleting foreign exchange resources of the country. In 2021-22 total export / import were about 110 million tons and freight US $ 8.0 bn approx. The PNSC lifted about 10% (worth US $ 0.8bn).  Pakistani ships could have lifted 40% and accrued US $3.2bn. Pakistan would have saved huge amount of foreign exchange which is need of the hour. 

Main objectives of the Merchant Marine Policy of 2001 which was valid till 2020 are: (i) Facilitate and attract private sector investment in shipping. (ii) Create an environment conducive for unimpeded growth of the maritime sector. (iii) Deregulate the shipping policy to provide free environment for investment in the maritime sector. (iv) Maximize sea borne trade of the country through Pakistani flag carriers. (v) Make the country’s merchant marine sector internationally competitive. (vi)  Make tangible contribution to the national economy by augmenting foreign exchange earnings and reducing freight bills. It gave incentive to investors by exempting all kinds of import duties till 2020 but this policy did not prove instrumental to increase the merchant feet. Main reasons could be, short period of validity, fear of nationalization and freezing of foreign exchange accounts, inconsistency of policies concerning associated industries, and cumbersome procedures for registration of ships and subsequent sale purchase. The flag of convenience offered by most of the countries like Panama, Liberia, Marshal Island, where the investors can register the ship at much ease such as no track record of funds, nominal taxation, easy sale / purchase formalities after registration etc.  Pakistani ship owners have about twelve ships registered under flag of convenience. These ships mostly carry international cargo because if these call on Pakistani ports are liable to be detained as per existing ship registration rules. It is one of the major factors which needs to be considered for shipping policy. The 2001 policy was amended in November 2019. Major points include (i) Period extended till 2030. (ii) Declaration of the Shipping Sector as a Strategic Industry (iii) Provision for the exemption of direct and indirect taxation(iv) Only Gross Registered Tonnage (GRT) based taxation with reduced rates @ US$ 0.75 annually.  (v) Provision made for priority berthing to Pakistani flag vessels, (vi) No preference to PNSC in private sector cargo (vii) LNG agreements are to be on Free on Board (FOB) basis, (vii) 40 % share of PNSC in all new G2G bilateral agreements(viii) Relaxation to PNSC for entering into Joint Ventures (JVs). It is pertinent to mention that no ship has been registered even after issuance of the amendments. It obviously means that it does not give sufficient incentives and confidence to the investors and procedures for registration of ships are still cumbersome. The shipping industry is capital intensive which needs protracted policies, assurances from the government and ease of business.

Keeping aforesaid in view it is proposed that (i) Long term policy of minimum 30 years with supportive financing options may be issued after threadbare deliberations with stakeholders. Because investors, banks and financial Institutions view short-lived policies as a risk. (ii) Should address ease of doing business and extending support for International Financing Institutions (iii) Like other industries e.g.  agricultural, housing etc. the State Bank should allocate credit. (iv)   Nationalization and freezing of foreign currency accounts   be protected by Act of Parliament. (v)  Like construction industry no questions are asked about source of funds for another five years for registration of ships (vi) Holding of ships by Customs, FIA and Port Authorities should be minimized because holding ship for even few hours is capital intensive. A mechanism may be devised to let go the ship on guarantees. (vii) Pakistani flag ships with 100% Pakistani crew may be given rebate on port charges, berthing priority and other associated benefits. (viii) Pakistan’s legal system does not provide swift remedies, moreover prevalent limited knowledge of maritime laws, theship owners are reluctant to venture. Therefore,dispute resolution via International Arbitration (English common law or Swiss law) must be exhausted before approaching courts for remedy. (ix) A thorough review of ships registration procedures may be done by Mercantile Marine Department (MMD) explicitly from ease of business point of view. (x) Maritime specialized personnel may be appointed on the posts like Director General Ports & shipping, and MMD by giving ads in the newspapers.      (xi) Pakistani ship owners who have registered their ships under flag of convenience are allowed to register their ships in Pakistan within five years after issuance of amended policy with clear instructions that their ships will be placed under the Control of Naval Shipping Organization whenever this is activated, which is mostly done in state of emergency / hostilities.  It is pertinent to mention that USA employed bulk of its merchant fleet including ships registered under flag of convenience in Gulf war. Infect merchant fleet of a country is a very vital component of Maritime Power.  It is plays critical role during peace and hostilities. Pakistan needs to enlarge its merchant fleet which is the requirement for improvement of economy especially foreign exchange and to meet national  emergencies.

Dr. Anjum Sarfraz
Dr. Anjum Sarfraz
the author is Cdre (retd) former Senior Research Fellow, at NIMA And SVI Islamabad


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