On a global scale, approximately 11 billion tons of goods are transported by sea annually, equating to an impressive 1.5 tons per person based on the current global population. The ability of shipping to efficiently move goods and materials from production centers to consumption areas is fundamental to modern life. In economic regions like the European Union, shipping constitutes 80% of total exports and imports by volume and approximately 50% by value. As of 2019, the total value of the annual world shipping trade had surpassed 14 trillion US dollars. In Bangladesh, maritime routes handle about 90% of freight trade.
The industry faced challenges due to the COVID-19 pandemic and the ongoing Ukraine war, but Bangladesh has effectively addressed these challenges.
Motivated by promising prospects and incentivized by tax and VAT benefits, entrepreneurs in Bangladesh have expanded their capacity in the ocean-going shipping sector. The total number of vessels has reached 91 in 2023, marking the highest count to date, up from 80 ships just a year ago. This expansion has substantially increased the carrying capacity of ocean-going ships to nearly 3 million tonnes. Moreover, in the fiscal year 2022-23, the Bangladesh Shipping Corporation (BSC) achieved a net profit of Tk 2.46 billion. The state-owned autonomous corporation announced a 25% dividend for its shareholders during the 318th board meeting of its board of directors, held at the BSC head office in Chattogram on October 15, 2023.
Bangladesh expends a minimum of USD 9 billion annually on freight charges, with local ocean-going vessels able to capture only 8-10% due to a shortage of ships. Factors such as legal protection, tax benefits, and escalating freight charges have spurred new entrepreneurs to enter the ocean-going shipping sector, aiming to claim a larger share of the freight charges currently dominated by foreign ship operators. The sector’s growth has been fueled by provisions allowing local vessels to transport 50% of cargo, granting berthing priority at local ports, VAT exemptions during imports, and the surge in both exports and imports, as mentioned earlier.
Surprisingly, the pandemic proved advantageous for flag vessels as the cost of used vessels dropped by half, from USD 10-12 million to USD 5-6 million, amid a global trade downturn. Bangladeshi businesses capitalized on this opportunity, leading to a significant increase in the country’s fleet. From 2019 to 2020, as the pandemic took hold, 32 new flag vessels joined the fleet, and by December 2021, the total number of vessels had risen to 80 from 48 in 2019.
The surge in freight rates due to global supply chain disruptions during the pandemic attracted substantial investments in the shipping industry. Consequently, investments in the sector reached nearly USD 2 billion in 2021, including a new injection of USD 500 million. SR Shipping Limited, a part of the Kabir Group based in Chattogram, expanded its fleet from 23 to 28 vessels over the last five years, with a total investment of USD 345 million since 2003. Despite these developments, there are still ample investment opportunities in the industry. Currently, Bangladesh can transport approximately 20% of import and export goods through local flag vessels.
The pandemic showcased that several prominent companies have entered the industry, including Meghna Group with 15 ships, Akij Group with 10, Karnaphuli Group with six, Bashundhara Group with four, and Orion Group with one ship. The Bangladesh Shipping Corporation also possesses eight vessels. Meghna Group, particularly, deployed the highest number of vessels during the pandemic, with 10 out of the 32 new ships belonging to the group. Their 15 ships transport 0.7 million tonnes of goods monthly, an annual transportation volume of 9 million tonnes to various global ports. As of 2023, Meghna Group of Industries (MGI) operated 52 industrial units, and its vessels predominantly carry the group’s own goods imported from abroad for processing. With three newly purchased ships, MGI’s fleet size is set to increase to 22.
Notably, Bangladesh’s freight and logistics market is characterized by relative fragmentation, featuring over 1,000 local and around 20 international logistics and freight forwarding companies. Among the key players are prominent names such as Bolloré Logistics, DHL International GmbH, 3i Logistics Group, A.H. Khan & Co., and Agility Logistics. Notably, international companies predominantly enter the market through open joint ventures with domestic companies.
Experts have highlighted certain concerns, with a primary emphasis on the urgency of addressing investment issues. They underscore the need for enhanced facilitation of local investments to promote growth and development. Syed Iqbal Ali Shimul, CEO and Director of Shipping Liner, MGH Group, told the Industry Insider that foreign investments primarily aim for profit without focusing on employment and core sector development.
“Local investors possess the funds but require government support to facilitate their investment. This approach would lead to direct employment, enhance the country’s capacity, and be more sustainable. Given the government’s notable achievements in communication and connectivity, particularly internally and regionally, the current opportune moment calls for local companies to invest and leverage the connectivity prospects.”
Mr. Shimul further elaborated, “On a global scale, freight charges have significantly decreased in the post-COVID era, and the Ukraine war has also facilitated it. However, a lack of comprehension among companies and lawmakers poses challenges for local businesses to capitalize on this development fully.” He also mentioned a drastic charge reduction.
Additionally, he expressed concerns about depot management and the payment system, advocating for a much-needed reform that has been overdue for years.
“On a brighter note, I’m quite optimistic about the Matarbari Deep Sea Port. It will enable larger ships to dock directly, eliminating the previous reliance on smaller ships ferrying goods from ships anchored at a distance due to the absence of a deep-sea port. This improvement is expected to reduce costs associated with the port’s cargo capacity significantly”, he added.
“In addition,” he reflected, “with the government’s backing, the sector holds the promise to burgeon akin to the thriving RMG sector.” Transitioning to a forward-looking stance, he emphasized, “It’s imperative for the sector to prioritize global compatibility over outdated customs and norms. Adapting to the evolving global landscape is crucial for its substantial contribution to Bangladesh’s economy.”
Moreover, he conveyed confidence in the government’s well-defined plans for the forthcoming years. “Certain developmental processes,” he remarked, “are poised to unfold automatically.”
“However, in light of the aftermath of the COVID-19 pandemic, companies have devised their own strategies,” he said.
“They aim to leverage the disparities between international and national laws,” he continued, “urging the government to address and resolve these gaps.”
“Additionally,” Mr. Shimul mentioned, “there is a proposal to readjust freight charges in alignment with the interests of the companies.” This proposal signaled a push for policy adjustments to support industry needs better and enhance competitiveness. Despite these considerations, he emphasized, “The industry demands more attention,” indicating the need for continued support and engagement from relevant stakeholders. “Concerted efforts will be made to address its needs,” he affirmed.
The industry veteran remarked, “The companies are actively working on facilitating the challenges posed by the pandemic and are hopeful that collaborative measures with the government will contribute to the overall progress of the sector.”
The recent implementation of the Bangladesh Flag Vessels (Protection) Act 2019 has introduced several key provisions to bolster the ocean-going shipping sector. Entrepreneurs are now eligible for VAT exemption when registering vessels with a capacity exceeding 5,000 DWT, encouraging increased investment in the maritime industry. The act bestows priority berthing privileges upon Bangladeshi flag carrier vessels at local ports, enhancing operational efficiency.
“In a significant adjustment, the allowable percentage of goods carried by local ships has been expanded from 40% to 50%,” he noted. “This not only boosts the competitiveness of local vessels but also aligns with efforts to bolster the country’s shipping capabilities.”
He also noted, “The act streamlines the registration process, providing a more straightforward experience for investors and ship owners.”
The positive impact of these regulatory changes is evident as investors are now showcasing renewed interest in ocean-going vessels. The combination of VAT exemptions, priority berthing, increased cargo allowances, and streamlined procedures collectively positions the Bangladesh ocean-going shipping sector as an attractive and lucrative investment opportunity.
Many from the Bangladesh Ocean Going Ship Owners’ Association predict that these regulatory enhancements will catalyze significant growth in the sector. With the potential to create a substantial 600,000 jobs and generate an additional USD 4 billion in earnings, the ocean-going shipping industry is poised to play a pivotal role in the economic development of Bangladesh, attracting both domestic and international interest.
Syed Raiyan Amir is a Research Associate at the KRF Center for Bangladesh and Global Affairs (CBGA). He was a Research Assistant at the United Nations Office on Drugs and Crime (UNODC) and the International Republican Institute (IRI). He has completed his internship at Bangladesh Enterprise Institute (BEI). Besides, he writes feature articles in various newspapers on international and national affairs. He completed his BSS and MSS in International Relations from Jahangirnagar University.