IMPACT OF COVID-19 PANDEMIC ON THE COASTAL SHIPPING INDUSTRY OF BANGLADESH

Nuruzzaman Rashed , Tarek Musanna

Huge mother vessels carry goods from around the world to sea ports. Much of the imported goods are bulk in nature. Then the goods are unloaded to smaller vessels that transport them from sea ports to river ports. These smaller vessels are called coastal ships or lighter vessels. It is a type of flat-bottomed barge used to transfer goods to and from moored ships as the mother vessels cannot directly enter the port jetties to unload large volumes of cargo due to the low draft at the outer anchorage area. Besides that these vessels are used in transporting cargos from coast to inland and from inland to inland. The average capacity of which is usually 1200-1600 metric tons. These vessels are also called coastal ships as they can’t venture out in the open sea, but operate internally or close to the coasts.

Industry Overview

There are three major types of coastal and inland vessels:

-Lighterage vessels that transfers cargo from the port/mothership to domestic locations

-Oil tankers that transport oil to power plants and other destinations

-Passenger vessels

The focus of this report is on lighterage vessels and its industry, which transports 80% of the imports coming in the country through waterways.

As of late 2018, around 2500 lighterage vessels were operating on different routes

-Around 1000 under Water Transport Cell, the authority that allocates trips to vessels

-Around 500 under private initiatives

-Around 100 chartered by private companies

Bangladesh Inland Water Transport Authority (BIWTA), The Cargo Vessel Owner’s’ Association, and Water Transport Cell negotiate to fix prices and mechanisms to operate. For India going vessels, the concern has to take permission from DG Shipping to move along the coastal areas and without this permission, no vessel is allowed on this route. Usually vessels with capacity of 1500-1600 MT go to India and vessel with higher capacity, as in more than 1500-1600 MT run the Chottogram route. The cost of shipping varies between routes and goods. Per metric ton could cost between BDT 400 to BDT 1000 depending on the route and goods transported. Even though majority of the imports are transported using these vessels, the medium is hardly used for export oriented goods. Hence, these vessels usually stay empty going back to the ports. The cost of shipping has been on the rise in the last few years as ship building has become costlier due to the increase in the major raw material, steel plate price. A lighterage ship can cost from a few crore to around 10-20 crores depending on the size, quality of materials and intended cargo weight.

Carrying Cost

There are three major types of task for a lighter vessel.

-It can transport goods from the mother vessel from Chottogram Outer Anchorage or Chottogram Jetty to different river ports in the country.

The cost varies as per the locations of the ports:

-It can ‘lighter’ or offload from the Chottogram outer anchorage to the Chottogram port or Kalurghat bridge.

The above mentioned rate chart is applicable for Clinker, Cement and Limestone. However BDT 55 to BDT 160 per Metric Ton can be added with the above mentioned rate considering the nature of the products.

-It can transport goods and materials from India.

The above mentioned rate chart is applicable for Fly Ash, however the vessel owners charge additional $2 to $2.50 considering the nature of the products and destination.

Pre Covid-19 Scenario

Since the ports in Bangladesh are bottlenecked and not deep enough for many of the international ships to be able to navigate, there’s a massive demand for small, lighterage ships to offload cargo from those mother ships. There was a massive mismatch between demand and capacity to offload back in 2017, where the demand was 10x the capacity. Since then BIWTA has allowed permits for around 500 ships to be built. The situation has improved a little. There is still demand for ships as imports are rising every year.

Covid-19 and Lockdown

As Covid-19 forced shutdowns on economies, the supply chain of the world has been massively disrupted. Lockdowns were enforced in late March in Bangladesh, but businesses started to feel the wrath of the virus pretty early on. Businesses opened Letters of Credit worth $1.6 billion in April, a 268 percent drop from the same month last year and 263 percent from March, according to Bangladesh Bank data stated in a bdnews24 article. “The entire world was on lockdown in April due to the COVID 19 pandemic. No one opened LCs other than importers of drugs and some essential commodities ahead of the Ramadan,” BB’s Executive Director Kazi Saidur Rahman said, terming the situation “distressing”. The slightly improved on the later months.

In January 2020, the custom based import in the country was around $5.3 billion. It took a downturn from February and took a massive hit in April. Many internal ports were closed due to the lockdown. Ships were completely at a standstill. From May, the situation was starting to improve slightly, but as Covid-19 persisted, it could never go back to normal numbers. On top of that, imports declined again in August. With the suspected second wave coming, and the infected numbers going back to initial, high numbers in some of the western countries, the situation might not recover immediately. Back in July-August, due to lack of trips on the Chottogram port route, which handles 90% of all the incoming goods into the country, many businesses are compelled to deploy their vessels to the India route. But with the downturn of logistics and transportation, the competition in the route is fierce. Around 90% of India going vessels carry raw materials for cement industry which faced significant de growth in this year. As a result, total number of trips per vessel could come down to 6 trips or less this year.

Currently the total number of ships on the India route is around 350-450 even though the requirement is only around 300.

Usually, a single ship can make 18 trips in the Chottogram route and 12 trips in the India route in a year.

Strategy during Covid-19

For the time being, the main focus of the businesses is retention of existing staff and workers, and thereby they are trying to pay staff salary & bonus on time. As the economic situation eases up, the industry will get back to speed as international supply chain is slowly becoming normal.

Business Scope

-A ship can operate for 15-20 years with regular maintenance

-After the end of the lifetime, ships are overhauled to be operational again

Approximate Operational Cost Breakdown for a 1500 Metric Ton Vessel on Chottogram Route:

-A 1500 MT vessel on usually needs around 2400 liter of diesel for each trip.

-The vessel is manned by a crew of 13, personnel cost is fixed by BIWTA.

-The approximate cost of crew per month is around BDT 150,000 per month.

-A vessel needs to be maintained properly and is usually docked every 1-2 years for repair and maintenance. Including this period, a 1500 MT vessel can transport do 18 trips and 12 trips respectively on the Chottogram and India Route.

Prospects

-Demand of lighter and coastal ships keep on growing as Bangladesh is developing more and more. As mega projects are being carried out, more and more construction materials are required. Most of these materials or the raw materials required, such as limestone, sandstone, granite, crushed stones, fly ash, clinker are transported using these vessels via waterways.

-As the Government is planning on building the capacity of the ports, specially with deep sea ports, such as Payra deep sea port, the inflow of mother vessels as well as efficiency of offloading goods will increase multifold. The demand for lighter ships are projected to be double then compared to now.

-Transportation of coal to and fly ash from Rampal coal fired power plants will depend on these vessels, will likely increase the demand.

-As the demand of daily commodity and food grains increase with the increase of par capita income of the population, the imports of these goods will increase as well.

Challenges

Even though insurance for ocean going ships are mandatory, the same mandate doesn’t apply for inland vessels. The risk or accident proneness is relatively low within the coasts, on the other hand insurance premium is high. Hence ships are insured only when there’s a major need for it, like getting financing. But there are few occurrences of ships capsizing every year, and the ships are very expensive to recover. Another challenge is the transparency in getting trips/queues by the Water Transport Cell. When the trips are scarce, it’s imperative that there are no irregularities and proper regulations are maintained by the authority. On top of that, large factory owners are investing in procuring vessels which do not operate under Water Transport Cell, which is turn results in decreased trips.

Suggestion

Much of the sector is still very informal. There hasn’t been much support from the government in the past. But recently the sector is receiving some attention from the Government. The administrative bodies for oil tanker vessels are discussing with the finance ministry for a possible refinancing scheme at a lower-than-market rate for constructing vessels. We suggest the government extends this support for lighter vessels as well.

Conclusion

Given the regulation and the rising demand of the industry, coastal and inland shipping is generally a very stable and profitable business for those who have experience in this industry and an established fleet of ships. As the Covid-19 situation eases up and imports get back to normal, this industry is expected to bounce back quickly. If the situation persists, businesses with high leverage will find it difficult to survive and will end up selling their vessels. But the businesses with low leverage, will be able to survive and thrive afterwards.