At the onset, I must state that though this article deliberates upon the importance of good governance at the Pakistan National Shipping Corporation (PNSC), however, it is stressed that good governance is critical to the success of any organization regardless of its size or purpose and even more so for the numerous public sector organizations of Pakistan.
The development of technologies that have dramatically cut down travel and communication times has prompted the creation of the modern and interconnected global economy as we know it today. The exponential economic growth witnessed by humanity in the last two centuries is underpinned by increasingly open lines of communication paired with the efficiency and cost-effectiveness of oceanic shipping.
Shipping facilitates trade. Countries that have a large shipping sector are usually regarded as being economically strong and developed. As per the United Nations Conference on Trade and Development, over 80% of the volume of international trade in goods is carried by sea and the percentage is even higher for most developing countries.
For most economies, including that of Pakistan, shipping is the beating heart of the country, aiding the realization of economic potential, inducing growth, creating of employment, and establishing global connectivity for trading surplus, competitively advantaged commodities.
The recent developments between Russia and Ukraine have proved that sanctions imposed upon shipping can be used as an effective tool for cornering the economy of a nation. Sanctions have been imposed upon the Russian shipping sector and similar sanctions were imposed in the past upon Iran’s shipping sector. However, the time has proved that Iran could not be brought down to its knees mainly because of its strong and independent shipping base and similarly, sanctions upon Russia shall not yield the desired results primarily due to Russia’s strong shipping sector. Pakistan would be a very different story altogether in the unfortunate event of sanctions or embargos being imposed upon it.
The shipping industry of a country is also a reflection of the country itself. An economy, whether manufacturing or service-based, no matter how big or small, will have the need to sell its products (exports) on the international markets. It will also have an appetite to consume foreign produce (imports) in an attempt to supplement the supply of essential products or to satiate the demand for luxuries arising as a result of trade-induced wealth creation, both of which may not be available domestically. Sick economies often purchase more than they sell and in order to fulfill the shortfall of available foreign exchange, end up indebted to foreign creditors.
When such economic conditions persist, the country tends to go down into a spiral of lackluster growth, with the export creation industry’s output refusing to sufficiently expand in order to balance the country’s books. With a lack of domestically impelled cargo, the local shipping industry tends to collapse, as national shipping lines are often propped up by national cargo requirements, with these smaller entities unable to compete toe-to-toe with internationally established shipping behemoths such as Maersk, MSC, CMA CGM, and Hapag-Lloyd.
If that is not enough of a minefield, it is also widely acknowledged that shipping companies are some of the most internationally regulated entities on the planet, particularly in terms of environmental regulations. Upcoming regulations by International Maritime Organization (IMO), United States Coast Guard (USCG), and European Union (EU), in a bid to limit Green House Gas (GHG) emissions in order to limit the global temperature increase to 1.5°C above pre-industrial levels, seek to significantly cut down on the global fleet’s emission profile. The intensity of these regulations is upsetting the international freight markets, as a significant portion of the global fleet will be non-compliant with the emissions criteria and will have to resort to limiting engine output and reducing sailing speed.
With the eventual goal of moving towards a zero-emission shipping environment, the regulations will keep getting harsher over the years, with non-compliant vessels risking port arrest. For the sake of complying with these conditions, shipping companies must now move towards newer vessels with the latest cutting-edge technologies. However, due to the extreme pace of regulations and short intervals in between, there is a significant risk that even new vessels built today could be obsolete within a decade, with ships’ lives normally being around a quarter of a century. Presently, there are no off-the-shelf solutions for creating a vessel with zero emissions, with the technology along with commercial and economical solutions still under development.
For countries like Pakistan, with a single entity, i.e. PNSC, representing the entirety of the local shipping industry, managing such a company whilst securing sufficient cargo and ensuring compliance with regulations is akin to a herculean task. The nature of the industry itself, demands that shipping companies be managed by professionals with vast experience in the field.
Pakistan’s largest neighbor in the region, India, with its Shipping Corporation of India (SCI) has a long history of being headed by professionals trained and developed within the SCI itself. Four out of the last five Chairman & Managing Directors of SCI, representing a combined tenure of 26 years have been promoted from within the organization, including H.K Joshi (Former Director of Finance), Arun Kumar Gupta (Former Director of Technical & Offshore), Sabyasachi Hazra (Former Director Personnel & Administration) and P.K Srivastava. During this term, SCI has grown immensely. Today it has a fleet of 133 vessels representing 5.36 million DWT and a joint venture for four LNG Carrier vessels with NYK, Mitsui, and K-Line.
Unlike India, Sri Lanka has not fared so well. Sri Lanka had given charge of its sole national shipping company, Ceylon Shipping Corporation (CSC) to non-professionals, individuals with no commercial experience in managing shipping companies, back in 2014, when it ordered two newly built bulk carriers from China. Allegedly, these two vessels were overpriced with higher than expected financing costs, whose debt servicing caused CSC to accrue losses for five years before returning to profitability in 2021. Today CSC is the smallest national shipping company in the region, with only 5 vessels to its name.
Similarly, Bangladesh Shipping Corporation (BSC) also remains in hot waters. The publicly listed state-owned corporation that owns and operates the Bangladesh flag-carrying ocean-going vessels incurred the liability during its procurement of six new vessels from China under a government-to-government (G2G) arrangement a few years ago. Recently, BSC has had trouble paying back its obligations and consequently, the Bangladesh Government initiated a move to convert its TK 1,500 crore liabilities into equity. Going forward, troubles for BSC may persist as it continues to be managed by non-professionals instead of being helmed by seasoned industry professionals.
PNSC has been a profitable State Owned Entity (SOE) for more than a decade and while it has done well for itself, with a current fleet of 13 vessels including 2 recent inductions under its belt, it could have done much better. Like CSC, BSC, and Pakistan’s general political climate, appointments in PNSC, especially for the top job have been made externally and for brief periods of time, which has prevented PNSC from acquiring stability and clarity of purpose in the long term.
By virtue of the PNSC Ordinance 1979, the Corporation is an autonomous body whose administrative and financial powers are vested in its Board of Directors. The Board comprises 5 directors who are appointed by the Federal Government and 2 directors who are elected by the minority shareholders. Being a highly specialized and technical organization, it is imperative that the directors appointed to PNSC’s board have a maritime background or are capable enough to pick up the finer aspects of the trade very quickly.
It is imperative bod nominated or elected must meet the eligibility criteria laid down as per PNSC Ordinance 79 and SECP rules and imperative be qualified as a certified director in accordance with SECP rules certified director having qualified for the exam for governance from SECP approved institution. Sadly, none is qualified It is intriguing that the bod and the said-to-be ministry approved the sale of a workhorse of crude trade Afram ax tanker in today’s hot market if PNSC had no business for the 20-year-old ship. The market is starving for such ships as IMO gave 25 years of life to double hull tankers, Indian government’s recent notice is that ships up to 25 years old can be registered. The sold tanker could have been used for the Russian oil trade recently finalized by our government.
Despite the extremely challenging global economic environment, PNSC recently announced its highest-ever annual net profit after tax of Rs.5,650 million for the year 2021-22 as compared to Rs.2,264 million for the preceding year. These results are phenomenal and were possible in part due to the professional conduct of its board and the capability of PNSC’s management to steer it to record profits in an otherwise difficult year. It is quite obvious that the biggest beneficiary of PNSC’s success shall be the economy of Pakistan.
One of the most pressing problems faced by PNSC is the availability of experienced and capable human resources. The situation is further exacerbated by the lack of individuals, experienced in the shipping / maritime industries, present within Pakistan.
The small pool of such professionals restricts PNSC’s growth, with the Corporation being forced to hire and train its employees from square one. The problem is further exacerbated, when those same employees leave the Corporation for better prospects (and salaries) in the Middle East, which PNSC, being a government-owned entity, cannot match. This leaves the Corporation in a perpetual hunt for experienced and qualified employees. While frustrating for PNSC, the Corporation has nonetheless, rolled up its sleeves and gotten on with the job of delivering on its commitments of securing our Nation’s vital energy supply chains, despite being short-staffed.
Ethiopia, despite being landlocked, has invested heavily in building its shipping institutions by forming its own shipping company (Ethiopia Shipping Line) as well as its own Ethiopian Maritime Training Institute (EMTI) for training its own cadets to sail on its own fleet. EMTI is quite notable for offering its students Post Graduate programs, with the objective of fully developing its students by putting them on the pathway of fully recognized degrees instead of certifications, ensuring international/domestic employability, offshore as well as onshore managerial positions. Pakistan stands to learn from Ethiopia’s experience, in order to cultivate a suitable pool of talent, specialized in the maritime/shipping industry, who could ably serve PNSC as well as the country itself.
The critical nature of shipping represents a vital link to a nation’s economy and it is the responsibility of every country with a national shipping line to be focused on its welfare and growth. Shipping’s inherent technicalities mean that it needs the right people for the right job. It takes decades of consistent effort to build the knowledge base and internal capacity of an organization and a few years of poor governance to destroy that organization.
Numerous SOEs in Pakistan is a clear example of such poor governance stemming from the insistence of vested interests to hire or appoint heads of organizations who are neither professionally competent nor have the required knowledge to run technical organizations at the national level.
Pakistan has a long way to go in developing a seaworthy pool of talent that is internationally competitive and there is a need to reinvigorate our educational and cadet training programs to enhance their acceptability and ensure that our graduates can not only discharge duties at the sea but also in a managerial capacity onshore. Shipping can make or break a nation and it is high time Pakistan’s government becomes irrevocably cognizant of this fact.
The writer is an advisor to the Karachi Chamber of Commerce and Industry. He could be reached at firstname.lastname@example.org, captainanwarshah.blogspot.com