International liner trade of Bangladesh--partnering with leading terminal operators

The recent initiatives of the interim government of Bangladesh in the terminal operations of Chittagong port, awarding two terminals to global operators, as well as the operations of Pangaon inland terminal have raised controversies. Reading the reports and submissions at the apex court and arguments of our civil society, it appears that our people are oblivious of global trade patterns of date and happy to live in a cocoon. The economy of a nation and its progress are largely dependent on its external trade, and ports and terminals are vital to the competitiveness of its maritime trade. The world has gone through a transition from a closed economy to an open economy since the 1980s and free trade, i.e., liberalisation and privatisation has turned the world into a global village.

 

 

The fundamental criterion in privatisation or deregulation should be that there is a definitive gain in efficiency and assets are not merely given away as happened during the previous successive governments. Consideration for privatisation should have a certain set of criteria including first, the gains will be much more impressive than the current ones; second, it will make considerable technological and structural improvement; third, it will break up monopolies; and fourth, investor's capabilities because the success of an enterprise is largely dependent on the quality of management.

What is presently happening in the waterfronts of Bangladesh is that the interim government has invited and successfully engaged leading global port and terminal operators to invest and operate terminals of Chittagong port. In other words, the port is not given away as the reports suggest that has given rise to public misconceptions and hence the unsubstantiated controversies. Moreover, the concessions awarded to the global operators is not about surrendering the ownership but leasing out the operation of the assets so they could become as efficient and competitive as their global counterparts. One of the two terminals -- the New Mooring Container Terminal (NCT) is already built, and the UAE-based DP World is the contender to secure its operation. The other one is a green field, an empty land of Laldia char (shoal) which is awarded to AP Moeller Group of Denmark for development, which, once commissioned, is expected to be as good and efficient as any of its terminals in Europe. The inland river container terminal at Pangaon is reported to have been awarded to the logistics subsidiary of one of the leading container shipping lines, Mediterranean Shipping Company (MSC) of Switzerland. These are interesting developments, and all three operators fulfill the four criteria listed above in the privatisation of terminal operation but not of ownership.

 

 

So the question is why it is necessary for foreign investment in our ports and terminals and the answers are many, first, it will infuse substantial foreign investment, second, it will improve the efficiency and productivity making our external trade competitive, third, it will improve our knowledge and expertise in port and terminal management, fourth, it will remove corruption that currently is rampant at our ports, and fifth, it will support the growing traffic and generate revenue. Bangladesh does not have any real expertise in maritime sector including waterfront management, and currently it is in all practicality an administration, a branch of government, rather than a business or commercial entity. It is, therefore, necessary that it be positively managed rather than passively administered, and foreign operators will just do that because they will not be here to waste their resources but to earn a desired return on their investment and that can only happen if there is marked improvement in efficiency and productivity. They will be at liberty to make their own decisions as to the strategy in planning and development. It will be free from undue interference from any quarter including the mafia cartels which thrive on the inefficiency and corruption at the terminals of Chittagong port.

 

 

 

Questions may arise as to the terms and conditions of the agreement with foreign investors-cum-operators and whether national interests are well protected in the awards issued to foreign operators. Bangladesh, among the least developed countries (LDCs), boasts one of the fastest-growing economies and is poised to transition into a developing country. It is therefore all the more important for our external trade to be more competitive and diversified, and waterfronts play a vital role in the competitiveness of our trade. It is undeniable that Chittagong is one of the most inefficient ports in Asia, lagging significantly in capabilities and performance; therefore, one of the most effective ways to enhance capacity building is to allow foreign operators access to our waterfronts to invest, build and operate our seaports and terminals on par with the technological and commercial efficiency of those in Europe. The ideal option would have been a joint venture between the Chittagong Port Authority and the foreign operator, with both parties sharing equity in the venture. This arrangement should include terms and conditions that outline the purpose and objectives, responsibilities and liabilities, guarantees and indemnities, environmental protections, compliance with current and future laws and regulations, as well as dividend determinations for both parties involved. Furthermore, it would have been better to begin with a single project rather than hastily giving away all the opportunities, which could lead to regret later for missing out on options that might have been more beneficial for Bangladesh in future ventures.

 

 

Foreign investment at waterfronts is a common feature of world trade today, and even in the Indian subcontinent, foreign operators have been operating terminals for long. As a matter of fact, AP Moeller operates terminals at 60 ports in 33 countries, of which two are in India and one in Sri Lanka. DP World operates terminals at 91 ports in 42 countries, of which four are seaport terminals, including the most modern Nhava Sheva (NSICT), and five are ICDs in India, QICT Karachi terminal and one ICD in Pakistan. None of these countries ever raised any national security issue because port developments have nothing to do with defence or security; they merely interface the shore and the sea enhancing trade facilitation. It is therefore a fallacy to call foreign investment at our seaports a national security issue. I was very surprised to read in the news that a submission has been made to the apex court terming foreign investment in the waterfront a national security issue. I find we have a serious knowledge gap in maritime trade, including maritime law and business, that often leads to legal and administrative bottlenecks. We should concentrate on enhancing our knowledge in this area.

 

 

 

One of the demands of AP Moeller, as per information, has been to make the navigability of the channel to their proposed Laldia Container Terminal be maintained at an 11.5-metre permissible draught with an LoA of 250 metres. We have no data, so far, as to the length and number of berths of the proposed terminal, but presuming the terminal would have multiple berths, Bangladesh should insist on a guaranteed berth for Bangladesh flag vessels. Our national fleet presently does not have container vessels, but discussions are initiated on possibilities of developing a container fleet by procuring cellular container vessels to facilitate direct sailing from Chittagong to European ports, which, if materialised, will reduce the transit time, cut down the transportation costs and make our exports more competitive.

 

 

This idea is what I proposed in one of my earlier papers: that Bangladesh should look for the maximum size of gearless container vessels for procurement because they are less expensive than geared vessels and in the capacity range of 5000 TEU, provided the Laldia terminal offers a draft of 11.5 metres to avail the benefits of economies of scale. The rationale behind the argument is that garments dominate our exports that are very light with a payload of between 5 and 10 metric tonnes per TEU, and with 5000 containers on board, the loaded draft of the vessels should be within the permissible draught. People may also argue that imports from Europe to Bangladesh are few, and vessels are likely to incur losses on the return leg. Here comes the planning aspect of shipping and the solution is to schedule the sailings in a way that ensures vessels operate at optimum capacity, with the proposed routing being Chittagong > UK/Continent > Singapore > Chittagong. The flag vessel should be full on its outward voyage by invoking the Bangladesh Flag Vessels (Protection) Act, but to fill the space on the return voyage, it should come via Singapore. The rationale for the proposed route is that there is a regular volume of traffic between Europe and Singapore; therefore, flag vessels should participate in this traffic and then invoke flag protection to fully load on their voyage from Singapore to Chittagong in order to maximise the revenue of the national fleet.

 

 

Finally, the ultimate purpose of having efficient waterfronts is to facilitate convergence of carriers and cargo. However, this is not the primary objective. Like train stations, the objective is the journey but not the station. Similarly, the objective of ports is to facilitate maritime trade, the more efficient the port the more competitive is the trade. My focus therefore lies on establishing a national fleet to proudly fly the Bangladesh flag in our international liner trade, making our products cost-effective and competitive. This initiative, if taken and materialised, would help expand our external trade, improve the national economy, generate employment for seafarers and shore-based professionals, and partially reduce our reliance on imported shipping services by lowering the outward flow of foreign currency on account of freight charges. In other words, having a national fleet is the import substitute for shipping services.

 

 

 

The interim government has been relentlessly working on attracting foreign investment, and the participation of operators like AP Moeller in the development of our waterfronts, like Laldia Container Terminal, should serve our national interests and put the name of Chittagong Port among the leading ports of the world in terms of efficiency and performance.

 

 

Khandakar R Zaman, an alumnus of the Australian Maritime College, University of Tasmania, served in Australia and Bangladesh on maritime trade and transport.

 

 

He has contributed articles on shipping and logistics in international and local publications.

zamankr@gmail.com