More flag carrier vessels sail in high seas

Highlights

• The new law gave the businessmen VAT exemption for registration of vessels with over 5,000 DWT capacity, priority berthing for Bangladeshi flag carrier vessels at local ports
• The country has to spend over $9 billion, as freight charge, on seaborne trade
• Local oceangoing vessels can tap into only 10-15 percent of it
• Increasing oceangoing vessels will also help keep the money inside the country, generate around 60,000 employment
• Declining freight charges, operating cost, high bank interest, delay in registration, double taxation at several international ports, and lack of flag protection factors, advance income tax (AIT), Value Added Tax (VAT), and other posed barriers to business expansion of local investors
• In 2019, the new Bangladesh Flag Vessels (Protection) ACT 2019 cleared some bottlenecks for the business from the Bangladesh Flag Vessels (Protection) Ordinance 1982

Almost all the businesses witnessed a slump globally amid trade downturn in the wake of the Covid-19 pandemic, but it came as a boon to the Bangladeshi flag carrier oceangoing cargo vessels.

Sixteen new Bangladesh flag carrier vessels were added to the country's fleet from January to August 2020.

This is the highest number of oceangoing vessel registration in eight months in the country, said the Mercantile Marine Department of the Department of Shipping, adding that two more ships were awaiting registration.

After a sudden fall in the number of Bangladeshi oceangoing vessels in 2012, the sector started to make a turnaround in 2019 which picked up the pace in 2020.

The Department of Shipping said the newly enacted Bangladesh Flag Vessels (Protection) Act 2019 is business-friendly. So the investors are reinvesting in the sector.

"And the Covid-19 caused the price of second-hand cargo to fall nearly 50 percent in the international market and the Bangladeshi businessmen are seizing the opportunity."

Bangladeshi companies usually buy five to 20-year-old – 50,000 deadweight tonnage (DWT) to 60,000 DWT – vessels.

The price of such a vessel was around $12-$10 million, depending on size and age. It has now come down to $6-$5 million.

The ship sales report of the international shipbroker Eggar Forrester, from January to July, revealed the figure.

When contacted, the country's largest oceangoing vessel company SR Shipping Limited CEO Mehrul Karim told The Business Standard, "The price of second-hand vessels fell slightly. Our company bought two." 

Experts said Bangladesh has a huge potential in the oceangoing vessel sector. It can save over $9 billion, which it is now spending on seaborne trade as freight cost, has scope to generate 60,000 employment, and to earn an extra $4 billion.  

According to the Mercantile Marine Department, before 2012 Bangladesh had 72 oceangoing cargo vessels but the number had dropped to 35 in 2012 and became 36 in 2018.

In 2019, the new Bangladesh Flag Vessels (Protection) ACT 2019 cleared some bottlenecks for the business from the Bangladesh Flag Vessels (Protection) Ordinance 1982.

After the enactment of the new law, 11 vessels got registered that year and 16 vessels from January 2020 to August 2020.

Earlier, declining freight charges, operating cost, high bank interest, delay in registration, double taxation at several international ports, lack of flag protection factors, advance income tax (AIT), Value Added Tax (VAT), and other taxes posed barriers to business expansion for local investors.

However, the new law gave the 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 percent goods to be carried by local ships which was earlier 40 percent, and ensured hassle-free registration.

Shipping Secretary Mohammad Mezbah Uddin Chowdhury said: "The Bangladesh Flag Vessels (Protection) ACT 2019 was enacted for the protection of the national flag carrier vessels. We are getting its benefit now." 

"Now a vessel is being registered within 24-48 hours. Also, we now have a sufficient number of skilled workers. This is helping the vessel owners to make low-cost appointments. Earlier foreign officers had to be hired at a high cost," Captain Md Giashuddin Ahmed, principal officer of the Mercantile Marine Department, said.

Bangladesh Oceangoing Ship Owner's Association President Azam J Chowdhury told The Business Standard, "The rate of registration has grown as some companies are buying vessels for carrying their cargos. Groups like AKIJ Group and Bashundhara are also buying vessels for the same purpose."

"Still there are some barriers within the law; the level-playing field has not been ensured. The government ships are getting priority. Also, the provision that at least 50 percent foreign trade of local goods must be carried by Bangladeshi oceangoing vessels is not bringing any benefit as the shipping ministry is not properly following the procedure at the port of loading." 

"For carrying Bangladeshi goods, the foreign vessels need a waiver certificate – saying that there is no Bangladeshi vessel at the port of loading. But we get the information two-three days after the Department of Shipping issues the certificate to them," said Azam.

"Another barrier that the new law has created is that ships registered in Bangladesh cannot be sold within five years. It will discourage the investors," Mehrul said.

Bangladesh Merchants Marine Officers Association President Captain Md Anam Chowdhury told The Business Standard, "If the government allows the oceangoing ship owners to open bank accounts in foreign currency, it will be easier for them to cut operating cost. Else, the companies will have to continue running offices abroad, to receive payment, bearing an extra cost."

"To encourage this sector, Singapore, Greece, Cyprus are allowing the business of oceangoing vessels to stay tax-free while Malta is giving tax exemption to the vessel owners," said Anam.

Mezbah said that they would have talks with the businessmen to find out if there are any loopholes to be fixed.

In the fiscal year (FY) 2009-2010, Bangladesh's export totalled 16.20 billion and rose to 40.53 billion in 2018-2019.

In the FY2010, the import volume was 23.73 billion and increased to 56.06 billion in FY2019.

However, Bangladeshi businesses have to spend over $9 billion as freight charge for export and import, but the local oceangoing vessels can tap into only 10-15 percent of it, which is less than $1 billion.

In the last 10 years, export and import increased around two-and-a-half times but the number of Bangladeshi flag carrier vessels did not increase.  

However, 2019 had been a different year from when things started to change.

According to the Department of Shipping, there are Bangladeshi 4,565 registered seamen. Of them, 1,887 are working at Bangladeshi and foreign vessels. 

According to the Bangladesh Merchants Marine Officers Association, there are 10,473 marine officers. Of them, 7,473 are working at Bangladeshi and foreign vessels.

The seamen who are registered with the Department of Shipping earn around $48 million while the merchant marine officers earn around $470 million.

Anam told The Business Standard, "Bangladesh needs at least 1,500 oceangoing vessels to tap the $9 billion freight cost. Increasing oceangoing vessels also will help keep the money inside the country and it will generate around 60,000 employment.

"From this employment, Bangladesh will earn $3.6 billion."