Protection of Bangladesh flag vessel and competitiveness

Around 5,000 to 5,500 different cargo ships arrive at Bangladesh's seaports every year. According to the Department of Shipping, there are currently 75 official and private seafaring ships registered in Bangladesh. Most of these ships are owned by several industrial groups. Only four of these ships are container carriers while the rest are bulk carriers and oil tankers. Bangladeshi-flagged ships account for a small number of those.

Despite such a small number of vessels, Bangladesh has adopted a protectionist policy through mandatory transportation of 40% -50% of the inward and outward cargo transported with Bangladesh flag vessels with the Flag Protection laws. The law was first promulgated as the Bangladesh Flag Vessels (Protection) Ordinance 1982 and was formulated on the basis of principles and objectives of the UN Convention on a Code of Conduct for Liner Conferences that was adopted on April 6, 1974.

Bangladesh acceded to the convention on July 24, 1975 and promulgated the Bangladesh Flag Vessels (Protection) Ordinance on March 24, 1982. The law, however, expanded its jurisdiction over the exclusive seaborne trade of the country as against the convention that included only the international liner trade. With such a policy, Bangladesh flag vessels were given priority and exclusive participation in both liner and tramp trades.
Transportation of goods to and from Bangladesh is mostly carried by foreign shipping firms. Despite such a poor carrying capability, The Bangladesh Flag Vessels (Protection) Ordinance, 1982, ensures that at least 40% of the sea-borne cargo relating to foreign trade is carried by national flag vessels both BSC and shipping companies in private sector. As at November 2018 and just before the draft of Flag protection law in 2019, there was no container ship under the Bangladesh flag. Foreign-flag vessels carry cargo to and from Bangladesh by obtaining waivers.

The number of waivers increased from 2,500 in 2012 to 3,500 in 2018. A limited quantity of bulk, petroleum or chemical cargo is carried by Bangladesh-flag vessels, which carry less than 40% of sea-borne goods. The remaining percentage of cargo is shipped by foreign-flagged vessels with weaver issued by a bureaucratic process. Cargo for carriage by a third-country-flag vessel is allowed only when there is no available national-flag vessel or flag vessel of the trading country.

Subsequently, some private companies came into this sector. The Bangladesh Flag Vessels (Protection) Ordinance, 1982 repealed and The Bangladesh Flag Vessels (Protection of Interest) Act 2019 passed and mandates Bangladeshi flag vessels carry at least 50% of seaborne cargo in the country's foreign trade and all cargos of public sector to be transported by Bangladesh flag vessels. The law makes it mandatory to obtain no objection certificate (NOC) from the Bangladesh Ocean Going Ship Owners' Association (BOGSOA) for privately owned vessels. The law is increasing the cost in time to ship goods with the mandatory requirement of obtaining a waiver certificate from Marchant Marine Department and Bangladesh Ocean Going Ship Owners' Association. According to foreign carriers, such type of protection is tantamount to monopoly. People working at the foreign shipping companies told a daily newspaper that this letter is against the spirit of free-market economy.

Even the Vessels go to and from Chattogram port and other ports in the subcontinent and neighbouring countries in very short time periods with voyages not lasting more than five days from one port to another and the law is asking for obtain and submit waiver letter before 15 days of ahead of shipment. This process often turns out to be lengthy, causing delays in trading.

The law requires any container feeder vessels calling at Chattogram port to obtain a waiver certificate from the Mercantile Marine Department 15 days before loading or unloading cargo at the port. This circumstance compels traders to hire foreign ships, and the decision needs to be taken at short notice. In reality, it is not possible to apply for a waiver for each ship 15 working days prior to shipment.

There is a recent improvement is registration of some additional national flag vessels. During February 2020, two container vessels were registered with the Mercantile Marine Office under shipping department in Bangladesh. Before registration of the two vessels, there was no Bangladesh-flagged vessel in terms of container ship. The office issued a letter on July 07 requesting the Chattogram Port Authority (CPA) to protect the two Bangladesh-flagged vessels as per the Flag Protection Act-2019. According to the office, the vessels should be given priority berthing at Chattogram port and 50-per cent business of the total containerized cargoes.

There is another side of the story, 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. During this corona pandemic Bangladesh saw a boom in registration of oceangoing Bangladeshi flag carrier. 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.

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. 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.

It is well known that the protectionism undermines competition, inhibits innovations and facilitates corruption in public sector corporations that ultimately leads to stagnation increase the cost of services. The policy has two major flaws that it provides carriage of 50 per cent external trade to be carried by Bangladesh flag vessels and that all commodities carried for and paid by the government must be carried by Bangladesh flag vessels.

The fundamental deficiency is Bangladesh flag fleet neither has the capacity to carry 50 per cent of external trade nor the required capability to carry the entire government cargo. A law without the capacity to implement it is a bad law. The law has also failed to address the issue of what determines that mandatory use of flag vessel if the shipper has a better freight offer from a non-flag vessel operator. The market economy can never accommodate a cost prohibitive regime that results in increase cost of products and services in this highly competitive market.

The protectionism always makes the beneficiary enterprises inefficient and expensive but such losses are invisible and difficult to calculate. All the shipping companies both BSC and private shipping companies are losing competitiveness and charging higher freight both import and export of consignments. As a result of the lack of trade facilitation including higher shipping cost, Bangladesh exporters losing competitiveness in international trading and demanding different subsidies and incentives to makeup the inefficiency to compete with exporters in other countries. As for example, despite low cost wage, the garments made in Vietnam is cheaper than Bangladesh in many other markets. Vietnam has taken 2nd position in global RMG market replacing Bangladesh. We should repeal the Bangladesh Flag Vessels (Protection of Interest) Act 2019.

M S Siddiqui, legal economist