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How does port congestion hurt ease of doing business?

Ports are widely recognized as crucial nodes in international trade and transport. However, for various reasons, capacity does not always match demand. When demand exceeds capacity, port congestion happens and brings the utmost difficulty in export and import.

BD port congestion

This phenomenon is a great threat to the Bangladeshi industries as this reason itself is a great cause for the local traders to lose huge opportunities from foreign investors.

According to the ‘2018 JETRO Survey on Business Conditions of Japanese Companies in Asia and Oceania’ Bangladesh attracts foreign investors mostly for the easy availability of cheap labor, otherwise, the business environment is not up to the mark at all.

Here port congestion is adding to the problem and making the situation even worse. Let’s see how this is adversely affecting our current business and threatening our future.

Bangladeshi seaport, what is going on right there?

$60 billion of annual trade currently pours through the country’s two existing seaports, Chattogram and Mongla, both are too shallow for large container ships and require costly load transfers to smaller vessels to get cargo in and out — an added step that can cost an additional $15,000 per day and severely decreases the ports’ global competitiveness.
Chattogram positioned a little way up the Karnaphuli River on the northeast curve of the Bay of Bengal, has always been the largest and by far most important seaport in Bangladesh which is handling 98 percent of the country’s container cargo and 92 percent of the total cargo volume.

Bangladesh port congestion

Ninety-two percent of Bangladesh’s total ocean freight equates to over 30 million tons of bulk cargo and more than 1.8 million TEUs (twenty-foot equivalent units) each year. And these numbers are rising fast. Cargo volume through Chattogram port is rising at a 14 to 15 percent clip annually.

The problem with Chattogram is that the current maximum draft of the port is just 9.2 meters — definitely not deep enough for many modern container ships. This requires a time-consuming and costly transfer operation, as smaller ships must be used to transport cargo to and from big ocean freighters that are anchored out in the bay.

A current scenario of the Chattogram Port

According to a recent report of Somoy TV, there were 42,999 containers in the port where the maximum capacity is 49,000. The containers’ number didn’t exceed the capacity but still, this is alarming because there is a need for adequate space for the vehicles, lorries and cranes to move freely.

So, these containers are apparently blocking the smooth movement of the cranes and other vehicles. This congestion has started from the month of May due to the strike of cyclone Fony which caused the port to be shut down for 3 days.

Then the huge vacation of Eid also added to the problem. For the discontinuation, the ships were having to stay on the outer anchorage for 3 to 4 days, sometimes even 5 to 7 days before coming to the jetty. At the normal time, the ships had to stay for 2 to 2.5 days or a maximum of 3 days. But they were staying for 7-8 days.

Generally, the ships can stay for 3 days without any charge. But now they are bound to pay an extra charge for exceeding their day limit which is very alarming for doing business.

Port congestion’s harsh effect in our backward linkage: weakening our business backbone

Bangladesh has become the world’s second-largest garment manufacturer, after China, and has a fast-growing spinning industry that processes raw cotton into textiles. Last year, Bangladesh imported raw cotton about 8.28 million bales valued at $3 billion. With demand rising, Bangladesh depends on imports for almost all of its raw cotton. The country’s farmers can provide only about 3 percent of annual demand for cotton needed to produce yarn and fabrics.

Monsoor Ahmed, Secretary of the Bangladesh Textile Mills Association, recently said port congestion threatens to raise costs. He confirmed that carriers have advised, “that due to congestion in Chattogram port, they are in a quandary whether to send vessels in Chattogram port or not.” This is certainly not a good sign for the country’s business.
“If the present situation continues, cotton prices may go up and the problem may turn worst,” he said.

Mahmudur Rahman Sumon, Managing Director of Zaheen Spinning Ltd., a producer of cotton yarn, told JOC.com that supply problems could hurt the country’s spinning industry by raising raise prices for raw cotton and yarn.

“Now both our imports and exports are affected severely due to the congestion in port impacting our competitiveness,” he said.

“The government should have had looked into the problems in port much earlier to keep the lifeline of the country’s economy unhindered,” Sumon added.

US cotton exporters’ concerns that there will not be enough capacity to move their containerized commodities to Bangladesh’s textile and apparel factories. They said that although Bangladesh is a growing market, its port congestion and lack of direct services add complexity to their supply chains.

In response to congestion that has been mounting for weeks, the port authority has instituted tighter limits on how long ships may remain at Bangladesh’s top port. Bangladesh cotton importers said they have been advised of an additional charge of $150 per TEU because of congestion that is reaching a ‘critical level’ at Chattogram.

“All shipping lines calling Chattogram terminals are heavily impacted, with vessels waiting an additional 7 to 10 days on average above the normal berth wait times,” according to a notice to customers from ANL, an Australia-based carrier offering worldwide shipping services.

What about our export growth?

We are incurring losses as the congestion has increased operation cost of the businesses. According to JOC, after cranes at the two jetties unload containers from 8.5-meter-draft vessels to reduce their draft to 6 meters, the ships are shifted to other jetties with a depth of 6.5 meters to unload the rest of the containers and the process repeats.

This is leading to higher costs on top of the delay because of the need to pay two different groups of workers to unload the ships. Meanwhile, ocean carriers have been pushing congestion surcharges for Chattogram-bound container ships from Shenzhen, Shanghai, and Guangzhou by $50 to $275, according to port officials.

From June 15, 2017, Maersk Line began charging $600 per container into Chattogram ships from the north and south Asia, up was from $400 to $450 in November last year.

Prothom Alo reported citing Bangladesh Bank that 26 percent of the commodities are imported from China. A total of 1,00,000 containers (each 20 foot-long) arrive at the Chattogram port every month. If $100 for each container is collected, the businesses have to spend an additional Tk 800 million every month.

Over the years tariffs have also increased. Since 2012, the port’s capacity has grown by only 8,000 TEU while the number of container-handling equipment has been flat. However, the newspaper reported that However, no jetty has been constructed in the last nine years.

For the export-oriented industry lead time is a big concern. It increases the production cost and sometimes has to bear airfare for the delay to meet the lead-time.

“There is still a shortage of required equipment at the Chattogram port, the principal port of the country, to handle the current export-import shipment. While the roads and highways are not in good shape to ensure smoother transportation of goods to the port,” Faruque Hasan, former Senior Vice President, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) told the Textile Today.

Due to congestion at the Chattogram port, sometimes garment exporters have to ship goods by air, which costs a huge amount of money. While sometimes the manufacturers have to offer a discount on price due to delay in shipment, Faruque Hasan added.

In the fiscal year 2017-18, Letters of Credit (LC) settlement reached at $51.53 billion, up 16.40 percent year-on-year according to Bangladesh Bank data. Investment in manufacturing increased imports, while the imports for megaprojects expedited the growth of import.
On top of that, Bangladesh has to think about its target of $50 billion export target by 2021 and other economic vision. In the year to come, Bangladesh on track to see huge investment from home and abroad said Hasan.

As a result, the port will see more cargo handling in line with the increased volume of export and import. So, it will likely to bring woes to the business community, said Hasan, also Managing Director of Giant Group.

What is going on in the minds of foreign investors?

Japanese companies were asked in JETRO’s (Japan External Trade Organization) survey, what is the underlying reason for the business expansion in particular countries? In their case, Bangladesh is at the top priority due to cheap labor availability.

avg. days-req in port

At the same time, there are some major issues that they and other foreign investors do not like at all. These are difficulties regarding product quality control, low-quality employee, the complexity regarding the wage increase and most importantly delay in releasing goods from customs.

According to JETRO survey, Pakistan takes the most time among the seaport of 19 countries. To release the imported goods, Pakistan takes 16.6, Bangladesh 15.8, Myanmar 13.3 and India 12 days. Likewise, Bangladesh takes the most time in the airport. That is 7.9 days.

Bangladesh’s position on the World Bank’s Ease of Doing Business Index is 176th among 189 countries. In this case, Afghanistan is also ahead of Bangladesh. Bangladesh’s position in the World Bank’s Logistics Performance Index is 100th among 160 countries. Huge delay in product release is the main reason behind the worst position of Bangladesh in ease of doing business.

Conclusion

In the open market competition, international customers naturally prefer shorter lead-time and try to ensure it. No international buyer wants to accept the delay. To compete in the market effectively the readymade garments sector needs reliable and shorter pipeline source for finished fabrics of export quality. There is no scope of self-satisfaction for getting foreign investment only for the sake of cheap labor.

This is high time we sorted out the port congestion problem. To achieve this, some new investments are required for making the port facilities smoother. Otherwise, Bangladesh can eventually become a bad egg for foreign investors.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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