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In pandemic time local shippers added 32 vessels to fleet

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NEW DELHI : Bangladesh spends at least $9 billion in freight charges per annum, while local ocean going vessels could tap only 8-10% at best owing to a dearth of vessels

Legal protection, tax benefits and rising freight charges – all these have encouraged new entrepreneurs to sign up in the ocean going shipping sector with intent to take a bigger slice of freight charges that now largely go to foreign ship operators.

Industry insiders say a provision for local vessels to carry 50% cargos, berthing priority at local ports, VAT exemption during imports and ballooning exports and imports have mainly spurred the sector’s growth.

To top it all, the pandemic came as a blessing in disguise for flag vessels when the cost of a used vessel halved to $5-6 million from $10-12 million amid a trade downturn globally. And, Bangladeshi businesses cashed in on it handsomely, they added.

Over the last two years since the pandemic made inroads in the country, 32 new flag vessels have joined the country’s fleet. As of December this year, the number of vessels increased to 80 from 48 in 2019.

Bangladesh spends at least $9 billion in freight charges per annum, while local ocean going vessels could tap only 8-10% at best owing to a dearth of vessels. Now it has the opportunity to retain at least 20% or $2 billion annually with the number of flag-carrier ships increasing, according to businessmen and Mercantile Marine Office of the shipping department.

Huge employment opportunities will be created as well, they said.

Surging freight rates stemming from global supply chain disruptions during the pandemic also drew in a good amount of investments. Thus, investments in the industry went up to nearly $2 billion with a new investment of $500 million.

Chattogram-based Kabir Group’s SR Shipping Limited, which currently owns 23 vessels, added five new ones to its fleet over the last three years and its investment in the sector totalled $345 million since 2003.

Shahriar Jahan Rahat, deputy managing director at Kabir Group, told The Business Standard, “Bangladesh should be self-sufficient with oceangoing vessels to retain freight charges now going to foreign ocean liners.”

“We have invested in flag vessels to retain our share.”

To further boost the industry, Shahriar demanded a more business-friendly policy.

Mentioning that they are retaining a pie of freight charges from going abroad, he also proposed withdrawing the existing 3% income tax on freight as they are fetching foreign currency this way, and providing them with a cash incentive.

Last year alone, his company brought home $100 million in freight charges with oceangoing vessels.

Captain Md Giyashuddin Ahmed, principal officer at the Department of Shipping, told TBS that the highest number of ships in the history of Bangladesh has been added to the domestic fleet over the last two years, thanks to the enactment of flag vessel protection law that encouraged private entrepreneurs to invest in the sector.

“There are still plenty of investment opportunities in this sector. At present, Bangladesh has the capacity to transport about 20% of import and export goods through local flag vessels,” he noted.

Other big names that entered the industry include Meghna Group with 15 ships, Akij Group with 10, Karnaphuli Group with six, Bashundhara Group with four and Orion Group with one ship. Bangladesh Shipping Corporation also owns eight vessels, according to the Mercantile Marine Office.

Meghna Group pressed into service the highest number of vessels in the pandemic time. Some 10 out of 32 new ships that sailed in high seas belong to the group.

Its 15 ships carry 7.5 lakh tonnes of goods per month and their annual transportation to different ports across the world stands at 90 lakh tonnes.

Mohammad Abu Taher, technical manager at Mercantile Shipping Lines Ltd, a sister concern of Meghna Group, said they have invested $375 million in their 15 ships. Four more ships are expected to join the fleet by December 2022.

According to Meghna Group sources, their ships carry 60% of the company’s own products. The remaining 40% capacity is used to cater to domestic and foreign companies.

In 2013 Bangladesh had 85 ocean-going cargo vessels, but the number had dropped to 35 in 2018 owing to declining freight charges, higher operating costs and withdrawal of VAT exemption on imports and manufacture of vessels.

High bank interests, image crisis, delay in registration, double taxation in various international ports and a lack of protection policy are other factors responsible for a dwindling number of merchant ships in Bangladesh.

The newly enacted Bangladesh Flag Vessels (Protection) Act 2019 has given businessmen VAT exemption for registration of vessels with over 5,000 DWT capacity, priority berthing for Bangladeshi flag carrier vessels at local ports, allowed 50% goods to be carried by local ships from the earlier 40%, and ensured hassle-free registration. So investors are showing renewed interest in oceangoing vessels.

Sources at Bangladesh Ocean Going Ship Owners’ Association said the oceangoing shipping sector has potential to create six lakh jobs and rake in $4 billion in additional earnings.

Meherul Karim, chief executive officer at SR Shipping Ltd, a sister concern of Kabir Group, said the flag vessel protection law has created huge opportunities for investment in the sector. Moreover, prices of ships came down a bit. That is why entrepreneurs in this sector have made new investments and there are more opportunities to invest in this sector.

After a decade, Karnaphuli Group restarted business in this sector by buying two container ships at a cost of Tk116 crore in 2020. This year, the number of ships in the group’s fleet now stands at six.

Bashundhara Group has made new investments in the LPG tanker sector. At present, Bashundhara Group has three ships for LPG transportation. The group also owns another cargo ship.

Lured by global shipping heydays?

While major ports are backlogged and there is a huge dearth of containers, global shipping companies are making record profits, some reaching highest in 117 years or even rivalling the profit of Apple Inc.

The world’s biggest container shipping line, AP Moller-Maersk A/S hopes to make more than three-time profits this year than the previous estimate and 15 times the amount the Danish shipping giant saw in 2019. Six months’ earnings of Germany’s Hapag-Lloyd AG have surpassed its earnings of the previous ten years combined.

Surging freight rates stemming from global supply chain snarl-ups mean headache for businesses, manufacturers and consumers, but big profits for ocean liners.

Cancelled or delayed voyages, high freight rates and congestion surcharges—all add to their income.

While record numbers of ocean liners are waiting off the coast of congested ports like Los Angeles and Long Beach in the USA, ocean freight companies continue to make money.

Freight cost to send a 40-foot container from China to California surged 10-fold to the range of $15,000 to $17,000, and the trend is predicted to remain through Christmas days to the middle of next year.

Are local companies putting money into ships in the hope to grab a pie from the global shipping bonanza out of the crisis?

Business executives said it might be a part of the strategy, but they in fact started relooking in the ocean container freights after the favourable law was enacted two years back.

Azam J Chowdhury, president at Bangladesh Ocean Going Ship Owners Association, told TBS most investments made in Bangladeshi flag carrier vessels over the last two years are for transporting their own goods. Bangladeshi entrepreneurs have the potential to invest more in this sector.

But the government has to fully implement the provisions of the flag vessel protection act, he added.

Anis Ud Daula, executive director at HR Lines Ltd, an affiliate of the Karnaphuli Group, told TBS that since the company has been involved in the shipping business for a long time, it has added six feeder vessels to its fleet over time.

At present, these ships can transport 25,000 TEU or Twenty-foot Equivalent Unit of import and export containers per month.

The deputy managing director of Kabir Group said surging freight costs is also a factor that brought in investments in the oceangoing shipping sector. 

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