This paper examines trans-shipment as a means to derive maximum benefit from the economic growth in India and China. The focus is on the shipping industry of Pakistan and the development of inland routes to optimize the usage of the naturally available comparative advantage to Pakistan, in the form of its geographical situation, in order to develop trade within the region.
For this purpose, an overview of the shipping industry in its present situation and the critical inland routes requiring development have been provided. The paper includes suggestions for what is required to achieve the objective of trans-shipment.
The paper concludes with the suggestion that trans-shipment is worthy of scrutiny and development by the government and all concerned authorities.
The emergence of globalisation and the consequent problems associated with it, such as smuggling, piracy etc, are having a very detrimental effect on the country's exchequer. The development of trade routes and free trade that this paper propagates will allow Pakistan to not only curb smuggling, hut also gain trading entry into India and China.
By implementing the solution devised. Pakistan will also be able to earn on the basis of facilitating trade between the two countries under consideration, and their trading partners across the world, via Pakistan, through trans-shipment.
Keeping the above points into consideration, the key comparative advantage for Pakistan is that the country needs to optimize the usage of its strategic situation.
This can only be a viable solution if Pakistan amalgamates its natural resources with artificial ones, such as technology, logistics, and finally, infrastructure.
Pakistan can derive maximum benefit from its neighbours, by literally opening its doors to them. In this regard, Pakistan can act as a trans-shipment hub to these countries, by providing them an access to their trading partners in a manner similar to that of Dubai.
The term trans-shipment means allowing goods that China and India want to export or import, first be sent to Pakistan through certain inland routes, and then using Pakistan's shipping ports, transport them further to their destination.
This would cut substantial costs associating with exporting and importing goods from and to, India and China. Furthermore, Pakistan could charge a certain fee associated with these shipments, which would in comparison, still be less than the costs incurred by the two neighbouring giants.
Trans-shipment results in adding value to the goods and items transported from one place to another. However, the objectives of trans-shipment are not only to reduce the total cost of collecting and/or distributing the containers carried by a mega-mainline container vessel from and to numerous origin and destination ports.
Each of the activities involved not only contributes a part of the mainline vessel cargo, but also to improve (JIT) just-in-time delivery of cargo, to reduce transit inventory, and make the total origin-to-destination movement of containerised cargo flawless.
Thus, the purpose is not just to reduce origin-to-destination transport and handling or transfer costs but also to make the whole supply chain, including all involved transactions, more efficient and more responsive to the rapidly evolving market place.
Such demands include assurance of in-time delivery, reduction of technological risk of obsolescence and technological competitiveness of traded products, customisation of cargo at trans-shipment points to meet special requirements, often communicated just before delivery, just-in-time satisfaction of changing environmental and safety regulations, and other special currency or payment and delivery requirements.
Trans-shipment is, therefore, not just a logistic convenience measure, but also an opportunity for adding value to the goods trans-shipped and to the value of the logistic chain performance. Other incentives driving trans-shipment are the potential for reducing the impediments and costs of sabotage by using foreign trans-shipment ports as a base for feeder transport to and from a whole like of national ports.
Undertaking trans-shipment requires us to embark on a thorough analysis of the coastal activities in all three countries under consideration along with a description of the inland routes, which need to be developed in Pakistan.
The 990 km square coastline of Pakistan is currently being utilised for two distinguishable activities, shore based and water based. The differentiation is on the relative placement of the activities; such that, shore-based activities require construction on the shore front or coastline in the form of three principal ports, two large fish harbours, three power plants, a large number of industrial concerns and amenity beaches.
While water based activities are undertaken on the sea or water. These activities include fishing grounds, mangrove forests, offshore oil exploration activities and clubs offering water sports.
A description of the shore-based activities is essential for the research as it is the essence of the solution promulgated in this paper. Hence, we begin with a description of the major ports of Pakistan.
KARACHI PORT The port of Karachi is the largest one in Pakistan. It is situated in the natural harbour of Karachi and dates back to centuries. This ancient port was found to be a very convenient point for embarkation and disembarkation of British troops and cargo, and was formally established under the Karachi Port Trust Act 1886.
Ever since that day, the port's importance has grown and it has become the heart of shipping in the country. This port is the hub of all major shipping activities in the country.
Thousands of tones of cargo exchange hands here and it has earned a profit of Rs 4.3 billion during 2004, with traded cargo amounting to 27.8 million tons.
PORT QASIM
Port Bin Qasim is located at a distance of 50 km from Karachi City. This port has a total covered area of 12,000 acres. This 12,000 acres is a collection of 1,000 acres dedicated to port activities, 11,000 acres dedicated to the industrial zone and a 45 km long navigation channel. So far, 14 million tons of cargo have been handled at the port during 2005.
GWADAR PORT The latest development in the ports within the country has been the addition of the Gwadar port. This newly constructed port has three multi-purpose berths of 200 metres each, with a 5 km approach channel dredged to accommodate vessels up to 50,000 DWT (dead weight tonnage).
Work on this port is still in progress and the development is envisaged to take place in two distinct phases. The first phase is to explicitly deal with the construction of the port, whilst the second phase pertains to "Landlord" agreements.
It is worth mentioning that, the concept of landlord agreements is not new. This sort of agreement calls for allowing the rental of the port's space to external parties, in exchange for a fees or rental paid to the port authorities, which is analogous to the treatment of payments to landlords, in other instances. (Examples of landlord agreements shall be touched upon later in the paper).
The first phase on Gwadar is almost complete and has been constructed on loan under specific conditions, which call for being paid off through the rentals that shall be collected by the port authorities.
The second phase calls for renting out the port. This shall take place in such a manner that, the port area will be rented out to the private sector on BOO basis, which is an abbreviation for Build Own Operate. Under BOO the port authorities will rent out the space to the private sector or investors, who in turn shall be responsible for developing the berths according to their own requirement.
They will also be responsible for operating and running/operating the berths, most importantly they shall be granted ownership under explicit conditions of the constructed berth.
Against these rights granted to the investors, the port authorities will receive rental payments, which will allow the payment of the loan, through which the port was initially constructed.
Once the loan and interest payments have been completely paid off, the remaining payments will be considered net income off the ports, hence, the sustainability of the port shall be guaranteed in the long term.
Explicitly phase one calls for the construction of three multipurpose berths each 200 m long, one Ro-Ro berth, one 100 m service berth, a 4.5 km long approach channel dredged to 11.5m-12.5 m (width 130-165 m), a turning basin 450 m diameter and related port infrastructure and port handling equipment and pilot boats, tugs, survey vessel etc.
On completion, the port would be able to handle 30,000 DWT bulk carriers and 25,000 DWT container vessels.
The second phase of construction would require the construction of ten berths comprising two bulk, two oil and six container berths. Furthermore, a 5 km approach channel, 600 m turning basin having a depth of sixteen meters having the capacity to handle 50,000 DWT (200,000 tons oil tankers) along with logistics, infrastructure, and Port facilities shall be undertaken.
Other facilities that would provide support to the plans also require an understanding. These facilities range from berths to oil piers to cargo holds and etc it is imperative that a discussion on them is carried out, in order to stress upon and understand the significant role to be played by them.
Thus, the other supporting facilities are discussed below, which shall play a significant role in attracting investment and trade, thus, helping in achieving the objective of this paper. A brief description of these facilities is mentioned below.
KARACHI HARBOUR Situated in the west of Karachi, the Karachi harbour has a channel length or a water way of 11.5 km and a channel depth 12.2 m which a characteristic of varying sector wise.
Situated on the harbour are thirty dry cargo berths and three oil piers. These oil piers are situated parallel to one another. The harbour offers 24 hours port operations or services.
The harbour consists of three oil piers, namely oil pier I, II and III. Of the three piers only two were fully functional and pier II was under renovation and development. During the course of this research, the pier has also once again become functional.
The characteristics relevant to this pier are, that it is an oil terminal, constructed at a cost of Rs 1.319 billion and capable of handling large oil tankers up to 75,000 DWT. A China-based company, China Harbour Engineering Company Pemcon (JV), undertook the construction of this pier.
Previously, on this site stood the old Pier II, which was constructed in 1966 and was capable of handling oil tankers up to 35,000 DWT and having a maximum capacity of 3.5 million tons per annum. This facility, however, had completed its life and required upgradation.
The present facility is still under development to facilitate tankers of 75,000-dwt and 8 million tones of cargo per annum capacity. The terminal under discussion is attributed of having the ability of managing cargo of various types, ranging from kerosene to edible oil, and facilitated with modern equipments to meet emergencies of any kind.
QASIM INTERNATIONAL CONTAINER TERMINAL Situated in the premises of the Karachi Port, Qasim International Container Terminal is an example of the landlord agreement, whereby port authorities have rented this area to these investors for the construction of the terminal under the BOO conditions.
The terminal is basically a dedicated two berths container terminal, constructed for catering to berthing facilities to 45000 dead weight tonnage class container vessels. The cost incurred in constructing this terminal has amounted to $35 million to date.
FOTCO TERMINAL This specialised oil terminal is among the various examples of landlord agreements to be found in the country. It claims a state of the art port facility to tankers up to 75000 DWT. The terminal has been developed by the Fauji group of companies and the cost involved in developing the terminal amounts to $87 million.
ENGRO VOPAK CHEMICAL TERMINAL This facility is basically a chemical terminal, as the name suggests, and has been developed by Engro Pakistan in collaboration with Vopak Netherlands. It too, has been developed on BOT basis or landlord agreement.
The capacity of the terminal is such that it can handle 75000 DWT vessels. The costs involved in the development of this project have been approximately $67 million.
IRON ORE COAL BERTH A dedicated iron ore and coal berth for exclusive use of Pakistan Steel for handling raw material imports, is also present in the country. This facility can handle up to 75000 DWT class vessels.
MULTIPURPOSE WHARVES Four multipurpose berths are also situated in the Karachi port area. They are situated in a linear length of 800 metres and are extending the port facilities up to 45000 DWT class vessels. These wharves are equipped with two covered transit sheds each having an area of 10,000 sq metres.
It is imperative to mention that, even though the above mentioned facilities are impressive and they reflect that the importance of the development of the shipping industry is felt in the country, many new additions of the same kind need to be made.
Furthermore, it is essential that, new technology and equipment be made available here to make trans-shipment a viable solution.
It is quintessential to emulate the examples set by others, be they developed, developing or even under developed countries. In our case, however, it would be advisable to learn from the example set by China concerning their Special Economic Zones.
These zones have proven to be extremely fruitful for the country in attracting foreign investment. Along with the five special economic zones, an additional 15 free trade zones, 32 state-level economic and technological development zones, and 53 new and high-tech industrial development zones have been established in large and medium sized cities.
The adoption of different preferential policies in these areas has allowed the Republic of China to play a multifarious role. Not only do they serve as "windows" in developing the foreign oriented economy, whereby, generating foreign exchanges through exporting products but also serve as instruments in importing advanced technologies through which they can accelerate inland economic development.
Thus, the recent development of Export zones in Pakistan is a step towards progress. However, to reap the full scale benefits, the policies adopted must be sincere and that they should aim towards the development of the country like China has done. Furthermore, mimicking China's example, these zones should be developed all along the Pakistan coast.
In addition to the zones being set up, multiplication of the facilities of the kinds mentioned above, on a large scale should be undertaken. Furthermore, pertinent questions put to the authorities responsible for port and shipping and have suggested the need for the development of the following kinds of facilities.
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