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Improving trade and transport efficiency - understanding the political economy of

Chittagong Port

Bangladesh Development Series – paper no. 6

The World Bank Office, Dhaka December, 2005 www.worldbank.org.bd/bds

Document of the World Bank

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CURRENCY AND EQUIVALENTS

Taka (Tk.) US$1 = Tk. 66.62 (October 27, 2005)

GOVERNMENT’S FISCAL YEAR

July 1 to June 30

ABBREVIATIONS AND ACRONYMS

AL Awami League BGMEA Bangladesh Garment Manufacturers’ and

Exporters’ Association BNP Bangladesh Nationalist Party BSAA Bangladesh Shipping Agent Association C&F Clearing and Forwarding Agent C&FAA C & F Agents Association CBA Collective Bargaining Agent CPA Chittagong Port Authority DTIS Direct Traders Input System DWMB Dock Workers Management Board FOB Freight on Board HR Human Resource ICD Internal Container Depot ICOA Inland Coastal Owners Association LCA Lighterage Contractors Association Majhi leader of the merchant workers MFA Multi Fibre Agreement MOS Ministry of Shipping MSA Master Stevedore Association NBR National Board of Revenue PSI Pre-inspection PTOA Port Truck Owners Association PUF Port Users’ Forum SAA Shipping Agent association TU Trade Union

TABLE OF CONTENTS FOREWORD ...................................................................................................................................................I EXECUTIVE SUMMARY .................................................................................................................................I 1. INTRODUCTION ..................................................................................................................................... 1 I. THE AIM OF THIS STUDY................................................................................................................. 1 II. WHY FOCUS ON NON-TECHNICAL CONSTRAINTS? ....................................................................... 1 III. APPROACH ...................................................................................................................................... 2 IV. METHODOLOGY.............................................................................................................................. 3 V. ORGANIZATION OF THIS REPORT .................................................................................................. 3 2. INTRODUCING THE PORT AND STAKEHOLDERS.................................................................................. 5 I. A VISUAL IMPRESSION ................................................................................................................... 5 II. STAKEHOLDERS – MAIN FINDINGS ............................................................................................... 7 III. STAKEHOLDERS – THE DETAIL ..................................................................................................... 7

1. Chittagong Port Authority ................................................................................................................... 8 2. The Dock Workers’ Management Board - and dock workers .............................................................. 9 3. Workers not covered by the DWMB scheme ........................................................................................ 9 4. Stevedores ............................................................................................................................................ 9 5. Truck Owners..................................................................................................................................... 10 6. Clearing and Forwarding Agents (C &F Agents)............................................................................. 10 7. Trade Unions ..................................................................................................................................... 11 8. Shipping Agents/Shipping Lines......................................................................................................... 12 9. Private container depots .................................................................................................................... 12 10. Customs............................................................................................................................................ 12 11. Importers and exporters................................................................................................................... 13

3. FREQUENTLY ASKED QUESTIONS ........................................................................................................ 15 I. WHY IS THERE SO MUCH CONGESTION IN THE PORT? ............................................................... 15 II. HOW DOES THE INFORMAL ECONOMY WORK? WHO WINS, WHO LOSES?................................ 16 III. WHAT ARE THE MAIN LABOR AND HUMAN RESOURCE (HR) ISSUES?....................................... 19 4. TWO SCENARIOS (POSSIBLE FUTURES) FOR CHITTAGONG PORT – AND THE POTENTIAL ROLE OF

DONORS ......................................................................................................................................... 21 I. SCENARIO 1: MINIMAL/GRADUAL CHANGE................................................................................ 21 II. SCENARIO 2. RAPID AND COMPREHENSIVE CHANGE ................................................................ 21 ANNEX 1. THE PORT - ISSUES FOR GARMENT EXPORTERS ................................................................... 25 ANNEX 2. USING THE PORT TO THEIR ADVANTAGE – DECISIONS BY CAR IMPORTERS...................... 29 ANNEX 3. PROCEDURES WITHIN CUSTOMS ............................................................................................ 31 ANNEX 4. STAKEHOLDER LINKAGE MATRIX (NATURE OF RELATIONS)............................................... 33 ANNEX 5. STAKEHOLDER LINKAGE MAP ................................................................................................ 34 ANNEX 7. LIST OF TRADE UNIONS IN CHITTAGONG PORT .................................................................... 37

ACKNOWLEDGEMENTS

This study has been conducted by the South Asia Environment and Social Development Unit, with assistance from the South Asia Energy and Infrastructure Unit. Study team consisted of Nilufar Ahmad (Task Team Leader), David Marsden (Lead Social Development Specialist) and a team of consultants - Sarah Ladbury, Mirza Hassan, Zahir Ahmed and K. M. M. Mannan. The work was carried out under the guidance of Richard O. Ackermann, Jeffrey S. Racki and Christine I. Wallich. The team benefited from the comments of two peer reviewers, Nick Manning and Warren Waters, as well as from David Hughart, Bina Valaydon, Mohi Uz Zaman Quazi, Catherine Signe Tovey and Syed Nizamuddin. The document was formatted by Shakila P. Khan Tandra and Joyce Mormita Das.

Special thanks to the representatives of Chittagong Port Authority, Trades Unions and Dock

Workers Management Board (DWMB) for providing valuable information. Thanks also to Shipping Agents in London, Felixstowe (the UK’s largest container port) and Lagos for making appointments for the study team with their partners in Chittagong – a reflection of the global nature of shipping contacts.

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FOREWORD

Governance is acknowledged to be the greatest impediment in achieving growth and poverty reduction potential in Bangladesh. Current efforts by the government as well as development partners have focused on identifying the barriers that constrain growth and the factors that drive change. However, too many policy recommendations focus on what needs to be done, rather than how it can be done. More attention needs to be given to the political economy of reforms – understanding the hidden barriers to reform due to vested interests – and identify ways in which these interests can be neutralized or mitigated.

Improving efficiency in trade and transportation sectors is no different. Seemingly obvious

reforms for improving efficiency without understanding the political economy and taking upfront measures are doomed to fail. One of the reasons for delays in Chittagong Port is due to the congestion caused by large number of containers in the quay area, which could be quickly reduced by increasing tariffs for container storage, preventing unloading inside the port, reducing the number of containers opened by Customs, and halving the steps required for Customs clearance. If any of these steps is proposed, it would be seen as reducing monetary benefits for at least one stakeholder group and would therefore be (indeed, has been) resisted by them.

This study on Chittagong Port uses anthropological approach to identify the informal system and network, the risks posed by interest groups, their nature and strength, who, because they currently benefit from the status quo and may be expected to oppose reform. This focuses on procedures that currently govern transmission flows and identified leverage points that can speed up these resource flows and reduce significantly the transaction costs associated with them. We hope that it would help inform dialogue between government, Chittagong Port Authority and its users, and development partners about the nature and extent of the risks involved – and the options to address or overcome them, so as to bring efficiency in the trade and transport sector and enhance economic growth.

We would like to express our thanks to the government, Chittagong Port Authority, its service providers and users; and other stakeholders who contributed their time and knowledge in the preparation of this report.

EXECUTIVE SUMMARY

The study focuses on non-technical constraints to efficiency in Chittagong port, i.e., on everyday working practices and institutionalized relationships that slow down the throughput of freight and thereby hamper import and export processes. Chittagong handles 90% of Bangladesh’s foreign trade and slow turnaround times have enormous impact on the economy, including on the competitiveness of Bangladesh’s main export – garments. The study therefore complements the majority of trade and transport studies that focus mainly on technical constraints - for example, a lack of cargo handling equipment, good rail and road transport links. It argues that without an understanding of working practices and relationships – basically, what is really going on in the port – transport and technological investments are unlikely to realize their full potential in terms of efficiency increases and, it follows, the economic growth and poverty reduction impacts that trade efficiency will bring.

The following methodology was used for this study. First, an attempt was made to meet and map all the different port users, to understand what they did, how they interrelated and what their interests were. This involved discussions with 11 different types of institutional stakeholders. Second, a participant observation approach was used to track goods through the port in order to understand the bureaucratic processes involved and to observe negotiations around payments, including those made informally. Although informal payments were a potentially sensitive issue most stakeholders spoke frankly about these. The limitation of the study is the lack of information it gives on the distribution of informal payments (e.g. how much is kept by the direct beneficiary and how much is distributed to peers or seniors). Further time would have been required to make these sorts of enquiries and to verify information received.

The study begins with a description of the main stakeholder groups, their responsibilities in the port and their interrelationships. Based on this appreciation of the institutional landscape the study addresses three critical questions that relate to port efficiency: (i) Why is there so much congestion in the port? (ii) How does the informal economy work? and (iii) What are the main labor and human resource issues? The final section envisages two possible reform scenarios for Chittagong port and outlines the role that the donors could play in each scenario. Finally, the study makes two recommendations regarding future donor support to the sector. Main findings

The following findings arise from the stakeholder analysis and from addressing the three questions listed above:

1. ‘Tragedy of the Commons’. Chittagong Port is a classic example of the ‘tragedy of the commons’ in the sense that individual stakeholder interests predominate to the detriment of overall port interests – and the national economic good. A discussion of how any one port problem could be addressed – congestion for example - exemplifies this. Congestion caused by the large number of containers in the quay area could be quickly reduced by increasing tariffs for container storage, preventing unloading inside the port, reducing the number of containers opened by Customs, and halving the steps required for Customs clearance. Yet proposing any of these steps would be seen to increase operating costs or reduce monetary benefits for at least one stakeholder group and would therefore be (indeed, has been) resisted by them. The same applies to most other seemingly obvious ways to increase efficiency. Practices therefore continue because no group is prepared to step out of line and act for ‘the good of the commons’, i.e. for the good of the port as a national resource, rather than for their own individual interests.

Improving Trade and Transport Efficiency – Understanding the Political Economy of Chittagong Port

2. Chittagong Port Authority (CPA) lacks the legal authority to co-ordinate and steer through

a radical reform program. Although the CPA is responsible for overall co-ordination and planning of port activities, it does not have real management authority over other port operators or users. It does not have the financial or managerial autonomy to effectively plan and steer through a reform process. Although the CPA has introduced some positive changes, these have been minimal and have had positive but limited impact. This is partly due to the connectedness of other stakeholders who can use their political clout to successfully resist proposals for change they see as inimical to their interests.

3. Speed payments proliferate the bureaucracy and institutionalize resistance to change. All port processes, and particularly those involving Customs clearance, require additional, ex officio payments. These so-called ‘speed payments’ increase the bureaucracy by proliferating the number of steps required to carry out each task and also act as a sort of job creation scheme (as each proliferated task requires a new clerk or operator). Larger, one-off payments are also involved, normally because Customs suspect under-invoicing or misclassification of goods for duty purposes and this provides an opportunity for ‘negotiation’. As elsewhere, posts that are particularly lucrative, as in Customs, become subject to market principles: individuals that manage to get transferred to Chittagong then have to make good their initial outlay and then make a profit before they, in their turn, are transferred. The system then becomes self-perpetuating. All of this accounts for why there is little demand for change - the vast majority of port and Customs workers rely on some form of informal remuneration and any proposal to streamline port processes is seen as a threat to this system.

4. Port services are not provided on a competitive basis and there is no system of performance based pay. Although most port services are provided by private operators (e.g. by stevedores, clearing and forwarding agents, truckers etc.) most of these are managed or licensed by a single board, association or trade union that operates, in effect, as a monopoly manager. The board or association has an agreement to provide workers for the port (say dock workers to unload ships or truckers to transport goods throughout Bangladesh) but not to ensure their efficiency or performance. Indeed, work allocation is on the basis of a rotation system – this spreads the work out fairly but provides workers with no incentive to improve their performance. A comprehensive human resources study that includes a focus on incentives has never been undertaken in the port.

5. Reforms perceived to be imposed from outside are likely to be resisted. Port stakeholders in general, and Chittagonians in particular, are proud of their port and are likely to resist any changes that they have not been party to or consulted about. One example of successful resistance was the proposal to privatize an existing container terminal made by the Stevedoring Services of America. This was taken to the High Court where the privatization proposal was thrown out on the basis that bidding was not transparent. However, the underlying reason for opposition was that privatization of an existing terminal was seen as a top down decision – port users and highly placed Chittagonians had not been involved in discussions about the reform.

6. There are some hopeful signs. Although all the points above suggest a highly institutionalized and individualistic system of entrenched interests, most of which are opposed to change, there are some hopeful signs. All the individuals representing 11 important stakeholder groups interviewed for this study could step back, take off their institutional ‘hats’ and talk candidly about the sort of institutional and labor changes that need to be made to increase port efficiency. But they did this only in private, not in their representative capacities or in conversations with other interest groups. This notwithstanding, it is the ability of stakeholders to see the larger picture and not to focus down on their individual interests - that must be brought to the fore and harnessed if significant institutional change is to occur and be supported.

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Executive Summary

Two scenarios for change The study considers the choices open to the donors in terms of future support to the port. Two scenarios are presented.

Scenario 1 involves the donors continuing to invest in infrastructure and transport sectors, in road and rail connections, in port equipment and infrastructure and in computerization and management information systems. These are, and will continue to be, important contributions to efficiency. Some of them might also be expected to mitigate, albeit slowly, some of the constraints caused by working practices and institutional arrangements in the long run.

Scenario 2 involves taking a more proactive approach with regard to overall port reform. ‘Reform’ is likely to include the introduction of competition principles, comprehensive human resource development planning, replacement incentives, an overall port authority structure with authority, and the necessary legal framework to ensure changes agreed are reflected in law. In this scenario it is envisaged that the donors could:

• clarify with government their short and longer term plans on port reform and any changes to legislation that are currently in process;

• consider supporting an extensive consultation process (over 6-18 months) that engages all

stakeholders in discussions about the future of the port and aims to draw up an accelerated and sequenced reform program;

• discuss the possible modalities for this with government. For example, a core group of

facilitators might be contracted – comprising, for example, a high-level, experienced negotiator advising one or two well respected national figures, ideally Chittagonians. This core group might then work with a stakeholder team, who would represent stakeholders both within and outside the port (this to include the Chamber of Commerce, the Bangladesh Garment Manufacturers’ and Exporters’ Association; Ministry of Shipping; National Board of Revenue and so on). It will be particularly important to engage the local leaders, especially, the Mayor of Chittagong and civil society in this process and have their support.

• identify financing needs. The consultation process is likely to include, as a first step, a

stakeholder visit to efficient ports in the region so that different parties can begin the consultation exercise with a vision of what Chittagong might look like if reform is followed through. Financing would also be required to engage the services of the core group (or whatever arrangement was agreed to co-ordinate the consultation process.)

RECOMMENDATIONS Following on from the scenario thinking exercise outlined above the study has two recommendations: 1. Consider offering TA support to realize Scenario 2 above. This would mean opening a dialogue with government and important port stakeholders (including the Ministry of Shipping, Finance, the National Board of Revenue, the CPA) about the findings of this study and their views on the possibility of a reform process proceeding – in broad outline – as described

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in Scenario 2 above. A decision to proceed or not would be made on the basis of their response. If the response was positive the donors might consider:

• supporting/encouraging the relevant parts of government – MoS, Finance, the NBR - to get the initiative started and commit to taking the necessary action on legislative reform;

• financing the necessary preparatory work – including visits by stakeholders to successful South

Asian ports;

• financing the skilled negotiators and some senior people who command respect amongst stakeholders (and do not have a self-interest in the reform itself). This financing would need to extend for however long the consultation takes, e.g. 6-18 months;

• financing additional studies that would need to be carried out in the process of reform

development, e.g. a comprehensive human resources development plan;

• financing part of the costs of implementation, particularly where these involve remuneration packages and other ‘transition’ costs.

2. Financing a reform process which is not linked to ongoing sector investments or broader economic policy lending. This means that progress on reform would not be made a condition of loans given for the trade and transport sectors or wider economic policy reforms. Such de-linking is essential in order to waylay stakeholder suspicion about the donors’ plans for ‘their’ port. If this project is perceived as an outside imposition, funded on the basis of conditionality, it is likely to fail. Bangladeshi nationals – and particularly Chittagonians for whom the port is the major employer and business focus - must be in the driving seat if it is to have a real chance of success.

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1. INTRODUCTION I. The aim of this study

1.1 This study focuses on non-technical constraints to efficiency in Chittagong port, i.e., on everyday working practices and institutionalized relationships that slow down the throughput of freight and thereby hamper import and export processes. The role of Chittagong in the economy of Bangladesh and in poverty reduction is critical: the port handles 80-85% of Bangladesh foreign trade, including the bulk of Bangladesh’s main export – garments.1 A recent study estimated Bangladesh garment exports could earn about 30% more if transport inefficiencies were removed. The stakes are high: “If the ports continue to choke the economy’s international trading links, no amount of macro-economic, trade or industrial policies will produce the massive export push needed to accelerate economic growth”.2 1.2 Increasing the efficiency of Chittagong, both of port operations and of inland transportation systems, has long been a concern of the Government of Bangladesh (GoB) and of the World Bank and other donors.3 Although the port has seen very gradual improvements in turnaround times and the volume of trade through the port continues to increase (an estimated 18% increase in container traffic and a 2-3% increase in general cargo last year) Chittagong remains one of the slowest ports in Asia.4 II. Why focus on non-technical constraints? 1.3 Donor and GoB officials have identified two types of constraints to port efficiency over the last 15 years: technical constraints (for example, a lack of cargo handling equipment, warehousing, good road and rail transport links and management information systems technology) and ‘non-technical’ constraints (for example, unnecessarily bureaucratic, lengthy clearance procedures for imports and exports and a lack of flexibility in the use of labor for port operations). In practice of course these are inter-related and are jointly responsible for inefficiencies. However, although donors have a long term vision that will ‘deal’ with these - basically, downsize the workforce, privatize port operations, then have government take a landlord role – there has been little thought to the intermediary steps required to achieve this vision given the local context, i.e. the interrelationships of different stakeholders, their relative power as decision makers and the areas in which their interests converge or conflict. This may be partly due to signals from government that it is not disposed to rapid reform but it is also due to donor timidity; a fear that the two stakeholders normally met by donor missions – the Federation of Trade Unions and the Dock Workers’ Management Board - are difficult to deal with and unlikely to embrace change that threatens the interests of labor. There is consequently a tendency for donors to concentrate on technical and transport constraints 1 This sector is now faced with the phase out of the Multi Fibre Agreement (MFA) and garment manufacturers see themselves as even more dependent on the efficiency of the port to reduce lead times and thus retain a degree of competitiveness in the global market. 2 ‘Strategic Issues in Ports’, World Bank Policy Brief 13, prepared for the Government of Bangladesh. July 2002. 3 The number of consultancy reports commissioned by the Bank and other donors testify to this concern. See for example: Hadi, Md. Omar, ‘Ports - Current Status and Potentials: Issues and Options’ commissioned for the WB South Asia Regional Development Workshop 1997; ‘Strategic Issues in Ports’, World Bank Policy Brief 13, prepared for the Government of Bangladesh. July 2002. Babul, Hadi Hussain ‘Policy Guidelines for Private Sector Participation in Port Development of Bangladesh’ for a workshop on Private Investment Opportunities, August 2001. 4 Various efficiency comparisons can be made with ports in the region. For example, a ship of 800 TEUs (twenty feet equivalent units) takes 8-12 hours to turnaround in Singapore but at least six times as long (4.5 days) in Chitttagong; discharge of freight rates for Calcutta are around 10 hours but for Chittagong at least 18. Slow turnaround times seriously affect exports, including for garments.


but not to delve deeply into working practices, stakeholder relationships and human resource/employment issues. No study has yet canvassed a wide range of stakeholder views on the way forward. 1.4 This study argues that without an understanding of working practices and relationships – basically, what is really going on in the port - transport and technology investments are unlikely to realize their full potential in terms of efficiency increases. Within the port the opinion is more vehement: ‘Without understanding the human side, no technical fix will make much difference – donors have to understand and help address the human resource side. And we (for our part) have to be more aware about all the informal practices that go on. We don’t normally talk about these but we need to. It’s the only way forward.’ 1.5 This study therefore focuses on gaining a better understanding of non-technical constraints on the basis that it is an essential means of optimizing the potential of other investments and to realizing efficiencies in their own right. III. Approach 1.6 The approach to this study is based on a number of premises derived from an understanding of working practices in other sectors. These premises are:

• Incentives. Individuals and institutions in the public and private sector act on the basis of incentives. These are primarily financial, although status – having someone to manage – is also important. Because port operations involve the passage of huge quantities of high value cargo requiring monitoring - with customs assessing the value of every consignment for duty purposes – opportunities inevitably arise for informal incentive payments. For importers and exporters payments to expedite operations quickly can make a substantial difference to their profits.5 Whether such practices lead to inefficiencies in port operations in this case - because they take additional and unnecessary time or have significant financial impacts - is a separate issue that was investigated;

• Job security. For lower cadre government and private sector workers a permanent job remains

highly prized as a form of long term security (and pension eligibility). Demands for job security and resistance to change that reduces job permanency will be at least as great if the post is highly lucrative as if it pays very little (albeit for somewhat different reasons).

• Resistance/openness to change. Individuals can, at one and the same time, acknowledge a system

has serious flaws and should be changed even if it is to their detriment and put up a solid and united resistance to that change if it is introduced in the wrong way, by the wrong parties or without sufficient consultation. Every change process must be seen to deliver two things: a ‘fairer’ system (defined locally) and stringent sanctions that are applied, without exception, to all those that do not follow the rules.

1.7 These were the working assumptions at the beginning of this study. They proved a useful starting point although conclusions testify to the ways in which they were expanded. A study of this kind in the future could begin with more ‘advanced’ hypotheses.

5 Ports in less developed countries tend to bring together poorly paid public servants and potentially better-off private sector exporters and importers. The private sector’s margin of profit is highly dependent on speedy action by the public sector – a classic case of Robin Hood detaining wealthy merchants whose time is money until they pay up. Unlike Robin Hood however, only one part of the booty so obtained is redistributed to the poor in the form of public revenue – the rest goes into private pockets.

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Introduction

1.8 One interesting point: all port users are referred to as ‘he’ simply because the port is a wholly male environment. The study team did not see, meet or interview a single woman during the research. IV. Methodology 1.9 The study was carried out during March – September, 2004. First, an attempt was made to meet and map all the different port users, to understand what they did, how they interrelated and what their interests and concerns were. This involved discussions with 11 different types of institutional stakeholder. (See next section and annex) Sometimes this involved meeting with individuals and sometimes with groups – for example, several Trade Unions was brought together at one point in order to identify differences in their points of view. Concurrently, different bureaucratic procedures required in port and customs operations e.g. what was done, in what sequence and why was mapped.6 The hypotheses above (on incentives, job security and responses to change) informed all interviews although, interestingly, it was usually the interviewees that initiated discussions on formal and informal incentives. 1.10 In order to avoid mistaking anecdote for fact, two rules were applied: first, informal practices would be reported only if one of the team had directly observed them. This meant applying a participant observation approach and literally ‘following’ goods for import or export, with a Clearing and Forwarding Agent representative (sarker), through the clearance process in the port or the Inland Container Depot (ICD.) This process was time consuming but allows us to report processes as observed. Second, amounts of informal payments are only reported if at least two different stakeholders report more or less the same amounts (discrepancy of a few taka was allowed but not of hundreds or thousands). These self-imposed methodological guidelines rule out the presentation of some of the more colorful stories but they allow us to be reasonably confident of the data presented. V. Organization of this report 1.11 The report begins with a brief description of what a section of the port (the general cargo and container berths) looks like to the uninitiated eye. This is simply to give readers not familiar with Chittagong port (or indeed any port) a visual impression. It allows some of the stakeholders to be introduced. We then outline the activities undertaken by different stakeholders, their interests, their relationships to each other and their attitudes to different attempts to improve efficiency. 1.12 The second section attempts to answer some of the questions that any outsider (and a good many insiders) frequently asks about port operations that have to do with bureaucratic and labor issues. It seeks to identify some of the less discussed reasons for slow turnaround time and questions some long held assumptions. 1.13 The final section presents two scenarios – or possible futures – for Chittagong Port as presented by different stakeholders. It outlines the potential role of donors in each. 1.14 The annexes exemplify points made in the main text and give more details about the experiences of particular stakeholders, including importers/exporters.

6 Two sources were particularly useful here: ‘Bangladesh Port System Development Project: Master Plan and Trade Facilitation Study’. Mott MacDonald et al, IDA funded, 1998. And ‘Shipping World ‘ 1998, whose author - Eyer Ahmed Bhuiyan - we had the privilege to interview.

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2. INTRODUCING THE PORT AND STAKEHOLDERS I. A Visual Impression

2.1 It is 3:00 p.m. on the quay and a peak time for unloading the general cargo berths. As far as the eye can see ships are being unloaded, the first 10 with general cargo - timber, bagged sugar, paper, fertilizer, steel. The nearest ships are from India, Burma and China. Beyond view are 6 more berths all unloading containers. Out of sight and along the coast are the specialized berths for bulk goods - oil, grain, cement etc. 2.2 Unloading the bagged sugar are dock workers, all dressed in sandals and lungis. These workers are some of the 4,300 members of the Dock Workers’ Management Board (DWMB) scheme. They receive the goods craned down from the ship and load and stack them in the waiting trucks. They are working for the Stevedore, one of 55 Stevedoring companies certified by the Chittagong Port Authority (CPA) to operate in the port. The Stevedore is responsible for unloading and loading ships and is on deck monitoring ship to shore operations. He would much prefer to employ his own workers and use his own equipment but he cannot do this because he must use DWMB workers and CPA equipment and operators. 2.3 A fork-lift truck driver dressed in trousers and shirt is one of about 8,500 CPA employees (these are different from, and in addition to, the workers employed through the DWMB). He moves some of the goods into the nearby shed – they have not cleared customs so cannot be loaded onto trucks for removal. The man on a motorbike is a Clearing and Forwarding Agent (C&F) representative, one of 2500 C&F companies licensed by the CPA to operate in the port. He is responsible for clearing goods through customs and for onward delivery to the importer. He is arguing heatedly with a dozen truck drivers who all want to be loaded first. Their colorful Bedford trucks now cut off the narrow road between the quay and the storage sheds making movement impossible. They are some of the 5000 truck drivers whose owners are responsible for removing 90% of all goods out of and into the port – only about 10% go by rail. A number of security guards, all in uniform and supervising the storage sheds, employees of the CPA, look on. 2.4 Half a mile furthers on, in the container terminals, the situation is even more crowded. Several containers, unloaded onto the quay, are being opened for inspection by Customs and, at the same time are being unstuffed (goods are taken out) and loaded into the waiting trucks. The unstuffing is done by another group of workers – merchant workers. They are not part of the Dock Workers’ Management Board scheme and negotiate rates individually, through their leader (Majhi) with the C&F Agent.7 There are perhaps 30 of them in view and at least 20 trucks waiting to get close to the containers. There is meant to be a queuing system but this is not apparent. The train that transports containers to the Internal Container Depot (ICD) in Dhaka is trying to pass through the area but trucks are parked across the railway line. The train is therefore stationery and the driver has his hand on the siren making conversation impossible. All of this appears to take place in an impossibly small space amidst many hundreds of containers stacked in the immediate area. 2.5 The Customs official, an Assessor, is the one person unrelated – at least by formal institutional ties – to any of the other individuals so far mentioned. He is checking to see that the goods mentioned in 7 In reality it is more complex than this. The majhis (leaders of the merchant workers) liaise with another layer of middleman – contractors – who are employed by C&F Agents to arrange truck loading and unloading processes. Contractors also liaise between C&F agents and the Truck Owners’ Association for the provision and payment of onward and return transport. (It is conceivable that there are other middlemen that we did not hear about.)


the Bill of Lading are indeed those stored in the container. He is also checking whether the PSI (pre-shipment inspection) certificate that valued the goods at the port of export is accurate for duty assessment purposes. He is talking to one of the C& F agents whose consignment he is examining. The C&F representative has just returned from the Customs building where he had to present paperwork relating to the consignment at 17 different tables. 2.6 This bird’s eye view of the quay at 3pm on a June afternoon introduces just a small number of the estimated 50,000 or so workers that are employed on port-related work. (The port is the major employer in Chittagong.) It also relates only to imports. Much the same picture could be painted for exports except that the latter is a speedier process as there are fewer formalities to be completed8. Also, and as discussed later, a proportion of containers for export are now stuffed in private depots outside the port (off docks) and this considerably reduces the congestion that would otherwise result if all containers were stuffed and unstuffed in the same space. 2.7 Yet even this one-dimensional picture raises some obvious questions about port efficiency and about institutional relationships. For example:

• Why are containers being unstuffed on the quay? The whole idea of containers is that they provide a door to door service. Even if deficiencies in onward transportation systems make it necessary to unload goods into trucks nearby why can’t they be taken back from the quay and unstuffed where they do not hold up other operations? Why do they need to be unstuffed in the port at all?

• Why is the port so full of containers? Why can’t they be stored outside the premium site area of

the port? Even if half were removed it would free up space for an efficient queuing system for trucks, allow for the free passage of the ICD train and reduce the reportedly high number of accidents.

• • Why is Customs checking the container given that the value of goods has already been certified

at the port of export (a service for which Bangladesh Customs pays $58m annually)?9 Why do Customs open 10% (an enormous number) of containers that already have a pre-shipment valuation certificate – and all containers that do not have one? This level of checking significantly slows down the movement of freight through the port;

• Why are 17 different procedures required to certify documentation prior to assessment by

customs? Is this amount of bureaucracy really necessary? (The total number of signatures required to get goods from the quay to the port gate is nearer to 30).

• Why is the Stevedore unhappy about hiring Dock Workers’ Management Board workers, why

does he want to bring his own?

• To begin to answer these and other questions it is necessary to have a wider appreciation of who is who in the port, who makes decisions about what and who is accountable to whom.

8 According to Customs House they employ 774 persons and that significant improvements have been made in the last 3 years. For imports document processing has been reduced from 32 to 11 stages, and for exports from 17 to 4. They state that 98% of exports and 68% of imports are processed daily. Customs have introduced the Direct Traders Input System (DTIS) that allows importers and exporters to enter declarations about their consignments into the central customs computer system. This they can now do from their own offices which decreases errors, saves time at customs and requires only four steps to clear declarations. Customs officials indicated that this means a single window round the clock service and a reduction in physical verifications from 10% to 2%. 9 De Wulf, L., ‘Valuation and other Operational Aspects: Some Observations’ WB Consultancy report, Feb, 25, 2004

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Introducing the Port and Stakeholders

II. Stakeholders – Main Findings 2.8 An analysis of stakeholders follows. Main findings are presented first; a more detailed analysis follows. 2.9 The main institutional finding to arise from interviews with stakeholders is that there is no overall authority that can hold different groups accountable for the role they play in making the port efficient. The Chittagong Port Authority (CPA) is the port’s manager but it does not have authority over other players. No-one stakeholder is directly accountable to any other. Each of the parties – be it the Stevedores, C&F agents, Customs, Truck Owners or whoever, therefore act as a series of monopoly businesses. Lacking competition there is no incentive for stakeholders to improve the productivity of the service they offer. At the same time each business is dependent on every other one for its own survival. If any one stakeholder group is sufficiently disaffected to go slow or stop work every other business is affected and loses financially. This interconnectedness of stakeholders makes for a sort of equilibrium but it is not one that makes for overall efficiency. Indeed, there is no incentive for any one party to try to make the port, as an entity, more efficient. Rather the incentive is to look after their own individual interests. 2.10 Whilst most stakeholders interviewed would probably agree with the above summary (it came from listening to them) their ideas as individuals are much more radical. As individuals they can step back and see the importance of the port to the economy and the point of improving systems that will lead to longer term improvements in their own business. In private some will go as far as to say that their own business should be privatized and/or differently managed, that there should be significant cuts in labor and that rules should be imposed, including on all forms of informal transaction, as long as this is done without favoritism. In short, there is a good understanding of the wider issues and of the need for radical reform, at least amongst the managers/officers of different stakeholder groups that were met during the study. Annex 8 is an attempt to capture the comments that were made about port reform. As noted previously, although it indicates there are some differences of opinion about port reform it also demonstrates many areas of overlap. 2.11 These findings give a different view to that normally presented in donor reports where the trade unions are normally identified as ‘the’ problem in terms of their opposition to reforms. We found no particular evidence that the trade unions were any more protective of their corporate interests than anyone else, or less able to see the wider picture. This of course has implications for bringing about change in the port: it is not a case of wearing down the opposition of one particular group but of consulting with all groups. It would mean developing a plan of action that establishes a level playing field so that even while most parties see a short term disadvantage most will also see the potential of long term benefit through competition. It then means ensuring there is a legal framework for the reforms proposed. III. Stakeholders – The Detail 2.12 Individuals from eleven different stakeholder groups were interviewed for this study. The following section outlines the responsibilities of each and their interrelationships. This is presented in a diagram form in annex 6 whilst the nature of relationships between stakeholders is presented in matrix

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form in annex 7.10 Annex 8 summarizes points made by different stakeholders on their attitudes to port reform. We appreciate there are many gaps in the text below and the annexes, not least because the opinions of the main decision makers – the Ministry of Shipping, National Revenue Board and Ministry of Finance - were not canvassed for their opinions. This should be the starting point for any follow up work as most of the main decisions rest, ultimately, with government. 1. Chittagong Port Authority

2.13 The CPA is the overall administrator of the port, responsible for the management, co-ordination and planning of port activities and for providing some port services (e.g. cargo handling equipment and operators and security). It has 8,500 employees plus (currently) 3000 vacancies due to a government embargo on hiring staff. (Again, these 11,500 employees are in addition to the DWMB dock workers). But despite its pivotal role the CPA has no real management authority over other port users. It licenses Stevedores and C&F Agents but does not control their working practices. Although the CPA Chairman is the Chief Executive of the DWMB this is primarily an ex officio position. In private many stakeholders agreed that the CPA should be invested with much greater financial and managerial autonomy by government in order to enhance the authority of the CPA. This would require changes in the current legislation.11 2.14 The CPA is acutely aware of the lack of competition in the port, is keen to introduce proper incentive structures and reduce informal transactions and move forward with reforms. However, its hands are tied by its lack of authority and also by the collective power of the Port Users’ Forum, a representative group of port users vocal in its opposition to any move that threatens their individual interests.12 Recently, they successfully opposed the CPA’s decision to increase rents for container storage. As a result, rents for container storage remain the same as they were when the CPA was formed in 1976 – 17 years ago! Low rents are one of several reasons why containers continue to clog up the terminals – importers and exporters use the port as their storage area.13

10 The Stakeholder Linkage map (annex 6) illustrates the strength of linkage between different stakeholder groups and is helpful when the intention is to focus on one actor and identify its linkages with other groups. The matrix at annex 7 attempts to plot the intensity of relationships between groups. It also highlights potential differences between stakeholders over reform issues, a theme further developed in annex 9 which presents a summary of attitudes to reform in table format. The linkage map and the matrix are adapted from a model presented in a paper by Ahmed and Mastsaert. See Ahmed, Z and Matsaert, H (2004), "Developing Actor Oriented tools to enhance development intervention: a challenge for social anthropologists". Paper presented to the Chittagong Varsity Conference, "Anthropology in the 21st Century", January 25th-27th, 2004. Proceedings to be published. 11 To effectively enhance CPA authority it would also be necessary to reduce the role of the trade unions in labour-management relations and design appropriate regulatory policies to deal with private actors. 12 The Port Users’ Forum comprises representatives from port user and operator groups. It consists of the following stakeholder associations: C & F Agents Association, Bangladesh Shipping Agent Association, Master Stevedore Association, Port Truck Owners Association, Lighterage Contractors Association and Inland Coastal Owners Association. The Forum allows effective representations of collective views of the associations and the leadership of the Forum is periodically elected and changes are made on a rotational basis. Established in 1996, the Forum does not have regular activities but becomes pro-active when need arises i.e., when there is a crisis situation confronting multiple stakeholders. The Forum also becomes active when several port users need to deal with the labour unions in a collective fashion. Discussions with the members of the Forum suggest that it has not been a highly effective tool for collective action. Rather lobbying by individual firms or specific associations (C&F association, Shipping Agent association etc.) yields more positive results. According to the members of Forum it is much easier to deal with the CPA than the Customs. In general, market agents tend to prefer a collusive nexus between individual firm and relevant officials over collective action. 13 CPA’s ordinance was promulgated in 1976. Although the ordinance gives full financial and administrative autonomy the CPA is reluctant to exercise its power because of risk aversion, and fears of harassment by the anti-corruption bureau. It authority is also impeded by various ministries with special interests. This results in delays in making key decisions about awarding contracts, recruiting staff and procuring goods. Key officials in CPA also indicated that this is a systemic problem for all autonomous bodies and sector corporations in Bangladesh.

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2. The Dock Workers’ Management Board - and dock workers

2.15 The DWMB represents (at the time of writing) 4,300 dock workers. The scheme was originally introduced (as in the UK) to regulate the employment of dock workers and maintain their smooth supply to improve ship turnaround time. The Dock Workers’ Act 1980 outlines the aims of the DWMB as a) to register dock workers; b) to coordinate and manage the rotation system and c) to ensure the welfare of dock workers.14 Despite the DWMB’s agreement to reform - it has recently reduced the number of worker categories to 4 from 11 and has allowed the voluntary retirement of over 1000 workers in the last year through a ‘Golden Handshake’ scheme - it continues to be criticized by most other port users. The Stevedores complain they have to pay for larger gangs than they need, that they have to pay bakhshish to make the workers work at all, that they have no control over their productivity. (The DWMB have recently proposed that they introduce a productivity/ incentive scheme for workers but this was rejected by the Stevedores who want the DWMB scheme abolished so they can hire their own workers.) Other complaints about the DWMB include the number of proxy workers - those who have ‘inherited’ the original cards of those too elderly to work and come in their place. Although other port users think that the DWMB should be phased out the DWMB insist that their continued existence is vital. They argue that the CPA does not have the capacity to manage an additional 4000 workers and that if Stevedores were allowed to recruit their own workers they would exploit them – a point also made by some CPA officials. At the time of writing the debate rumbles on. 2.16 Talking to dock workers themselves was difficult during the study period due to the tension between them following the recent reduction of their working categories to four and the leveling of wages and conditions that this involved. Attempts to canvas the opinion of any one individual were quickly and noisily disputed by a worker from a different category. For reasons of safety we abandoned efforts to have more than cursory discussions with DWMB workers. 3. Workers not covered by the DWMB scheme 2.17 As noted above, several categories of worker in the port are not part of the DWMB scheme – their individual associations organize for them to supply specific labor services. These include the 5000 merchant laborers who unstuff containers and load them into trucks. Merchant laborers are represented/led by ‘Majhis’ who organize their deployment after receiving an order for their services from a contractor (a middleman hired by the C&F agent). Other non-DWMB workers include lighter workers, watchmen, coaster hatch workers, vacubators and the like; their numbers are much smaller. Again however, there is a competition problem – in a sense, each group of workers is permanently hired, thus there is no incentive to increase productivity. All workers are therefore ‘free’ to bargain with whoever wants the work done before they will start work at all. 4. Stevedores 2.18 Stevedores are private contractors hired by the Shipping Agents and licensed by the CPA to provide labor for the loading and unloading of vessels. There are 55 licensed Stevedore companies in Chittagong. However, because of the DWMB scheme Stevedore’s are forced to hire DWM workers over

14 Hiring of dock workers and other workers who are hired on a short term contractual basis (merchant workers etc.) is closely regulated by the trade unions (TU membership is essential to qualify for a job and these categories of workers all manage to retain their jobs through their membership of trade unions.) Recruitment processes for CPA officials and workers are more formal and are controlled by the Ministry of Shipping.

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whom they have no contractual authority. ‘We’ve become hostages of the workers’ is a frequently heard complaint. They would also like to use their own cranes and operators but these are provided by the CPA. Stevedores are therefore in the unhappy position of having to do a crucial job (load and unload ships) on which they are wholly dependent on other parties whom they cannot discipline or incentives. This epitomizes the point about the lack of an employer-employee relationship in the port. 5. Truck Owners 2.19 The brightly painted freight trucks are an integral part of the landscape of Chittagong. There are around 3,500 trucks in Chittagong with, at any moment 2,700 working within Chittagong city and between 500 and 800 involved in loading and unloading vessels on any one day. The 5000 truck drivers and their 2000 or so owners are crucial – they deliver almost 90% of all imports and exports to their destinations. As noted previously, there are very few container vehicles, so four trucks are required for every 20 tons of container load. It is a truly massive operation. 2.20 The Truck Owners’ Association represents owners and another association represents drivers. C&F Agents apply to the Truck Owners’ Association for vehicles, specifying the terminal for loading and their final destination. The Association then arranges for trucks on a rotational basis and also receives and distributes payment to the owners (via a contractor, hired for this purpose). 2.21 Not all trucks get to the port in time for unloading. Two or three hours are sometimes lost (a significant and costly inefficiency) because trucks are parked all over Chittagong and get caught in traffic on their way to the port (jams caused, inevitably, by other trucks). The Truck Owner’s Association is therefore canvassing the CPA to make some vacant CPA-owned land available for a truck terminal for 1,500 trucks near to the port to relieve congestion on Chittagong streets and facilitate their timely arrival in the port. A recent queuing system for trucks entering the port has lessened the chaos to some extent but only within the port area. The Association has had no success on the matter of the truck terminal. They attribute this to that fact that the land is also attractive to private container depots who can pay the CPA a higher price. 2.22 Like other independent stakeholders, the Truck Owners’ Association operates as a monopoly business. All trucks are used on a rotational basis on the basis of fixed rates. As with other stakeholders there is nothing to induce exceptional performance. The Truck Owners’ Association guards its monopoly position: it recently took a Cement Factory to court for using their own tipper trucks to load cement onto ships. This exemplifies the lack of an overall adjudicator in the port environment and the extent to which stakeholders will go to maintain their market share. 6. Clearing and Forwarding Agents (C &F Agents) 2.23 C& F agents are important private sector middlemen who work for Shipping Agents and/or directly for importers and exporters. There are around 2500 C&F agents out of which 1800 are members of the C&F association. Their job is to clear goods through customs and ensure their onward delivery to customers. They therefore have dealings with most port users. To do this they have specific individuals to look after each process (a sarker for customs, one for unloading on the jetty and so on). Sometimes they are part of ‘three in ones’ a term that refers to companies that are Stevedores, C& F agents and Shipping Agent all in one. (A combination criticized by other stakeholders for lacking the (marginal) accountability that comes with a separation of roles.) Most importantly, C& F agents are the primary interface between the importer/exporter and customs.

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7. Trade Unions 2.24 The number of trade unions in the port is a matter of debate – figures range from 22 to 25 although the official list (attached) gives 33. Some workers are covered by one trade union, for example the truck drivers, and others by several - CPA workers have five unions. Where more than one union represents a group of workers they all vote for a Collective Bargaining Agent (CBA) who represents their interests as a group. 2.25 Several interesting issues arise with trade unions. First, with the exception of the CPA where normal TU-management relations exist, most other TUs representing workers do not have an employer in the normal sense. Their associations – the Truck Owners’ Association for example – is more like a membership group that negotiates contracts with the CPA on behalf of truckers. Because it is a monopoly business there is little concept of the association acting as an employer – the associations’ members will continue to get work no matter how well they perform. Trade Unions and Associations therefore act very much in tandem, their interests are not normally opposed. In some cases workers do not have an association at all and their trade union acts as both union and ‘employer’ thus negating entirely the management-union relationship (vacubators are an example). 2.26 Secondly, there is nothing to suggest that the CBAs (i.e. key trade union representatives) are the ‘main’ problem in the port. Although they are extremely powerful – strikes can paralyze the port and bring much economic activity in the country to a halt – official strikes are called very rarely and no official and port-wide strike has been called for the last twenty years. Instead, groups of workers unhappy with a change in their situation will stop work unofficially to bring attention to their plight. The interdependency principle then comes into play. Because many other groups of workers – including exporters with good political connections - will be adversely affected by their action it is in everyone’s interests to address the issue and resume normal working. Stoppages therefore tend to be unofficial and short lived although this does not mean they are not extremely costly. Although CPA management-trade union relations in the terminals appear conflictual this relationship is highly institutionalized; on a personal level individuals say they get on well and their constant interaction addresses problems before they become serious. When one CPA officer was asked how much he thought the trade unions were responsible for inefficiencies in the port he replied ‘about 5%’. 2.27 Industrial relations in the port may also be helped by the fact that the CBAs all support the BNP, the party of government. Their political affiliation therefore aligns the trade union movement in the port closely with the interests of government both directly and via powerful interest groups dependent on the port (e.g. major exporters). The fact that there are 22 or 25 trade unions is of less importance than the fact that all their main representatives – the CBAs – support, indeed are the labor wings of, the BNP. (In group interviews with different Trade Unions we asked what would happen if the ruling party changed and an opposition party took over. The answer was that, most likely, a good proportion of the CBAs voted in at the next election would be members of the new party of government.)15 2.28 According to the Trade Unions their understanding of how other ports worked was greatly increased by a visit sponsored by the CPA to Malaysia, Thailand, Sri Lanka and other countries. This in large part accounts for their current willingness to support previously unpalatable topics – in particular, how to introduce more competition, ‘golden handshake’ labor retrenchment and computerization.

15 The one important Awami League member with considerable influence in the port and in the rest of Chittagong is the Mayor. He is extremely popular with Chittagonians and is described as a powerful and influential force in all matters relating to Chittagong.

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8. Shipping Agents/Shipping Lines 2.29 Shipping agents act as the representatives of shipping lines in the ship’s ports of call and are also licensed by the CPA. They arrange for the stay of ships in ports, settle customs tariffs (through C& F agents), and organize the unloading and loading of vessels (through Stevedores). One of the main functions of the Shipping Agent is to submit the Manifest (a list of all the goods on board) and accompanying documentation 24 hours before the ship docks. Without these documents discharging cannot begin. Shipping Agents are not normally present in the port as their responsibilities are discharged by C&F agents and Stevedores who they contract for this purpose. 9. Private container depots

2.30 In 1995 permission to store containers outside the port was granted for the first time – a decision that, according to private depot managers, took 18 years (it was apparently first mooted in 1977). There are now about 7-8 private container depots outside the port that handle a growing percentage of containers for export. Storage and stuffing (filling up) takes place in these yards and Customs officials are paid to visit in order to carry out the necessary checking and clearance procedures. These private businesses appear to be doing well although many struggled for years to acquire the land and licenses to set up a business. ‘We fought for a license from Customs and we had to sweat so much we are now dehydrated’ was how one private depot manager put it. One of the largest private operations visited now has a throughput of over 4000 containers a month, another has close to 5000 – this means 9000 less containers than would otherwise be stored and stuffed in the port. 2.31 From all points of view these private yards are an efficiency gain for overall port operations. They are a ‘hassle free’ and cheaper option for exporters (storage rates are less than a third of port prices), work is much more efficiently expedited and requires only minimal speed money (their operators are better paid than in the port). They are a ‘loss’ to the CPA in the respect that handling and storage charges go into private rather than CPA hands but they make for more container space in the port so are a net gain to port efficiency. 2.32 The question discussed with private depot managers was whether they could also handle the storage and unstuffing of import containers if the legislation ever made this possible. One view was that it may not be sufficiently profitable for them – an important comment but one that we did not explore further. Besides, at present, Customs are adamant that they want to keep all import operations within the confines of the port. 10. Customs

2.33 Customs are an entirely independent authority in the port answering to the National Board of Revenue and having no institutional links with the CPA. Their primary responsibility is to assess and collect import duty, thereby meeting NBR revenue targets. They also provide the necessary clearance for exports. The Customs operation in Chittagong is by far the largest and busiest in the country – an estimated 1100-1300 consignments are entered for clearance each day (350-400 for imports and 500-600 for exports). 2.34 As noted previously Customs in Chittagong is primarily a manual process16 and a very large number of containers are opened. Those port users dealing with Customs describe them as ‘overcautious’

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and hold that they open far more containers than is necessary, particularly since the majority already have Pre-Inspection (PSI) certificates that assessed the value of goods at the port of export. Customs, however, argue that there is much under-invoicing and misrepresentation of goods, including in some containers that have a PSI certificate. Besides, they have high revenue targets to meet for the NBR; the more containers they open the more chance there is that they will achieve their targets. 2.35 From the customers side (the importers represented by C&F representatives) the customs’ bureaucracy is in a continuous state of ‘proliferation’ with steps added to the clearance process in an apparently ad hoc manner with little logic except that each check, signature, counter-signature, stamp and re-check requires the payment of a small (e.g. 50 taka) unofficial fee. Customers do not complain about these fees as they are seen as part of the costs and are included in C& F agent official charges. (Thus on C&F invoices regular speed money payments are included as part of the bill.) However, there are a number of practices that do arouse considerable concern – though again, these involve several parties. They are discussed in more detail in the following section. 2.36 The impression gained from port users about Customs is that there are few pressures for change within Customs itself. Customs is variously described by port users as constituting a ‘sea of informality’ (see annex 4) with those preferring more organized and formal procedures leaving to work in other operations or in the NBR in Dhaka. 11. Importers and exporters

2.37 Exporters are highly dependent on the efficiency of the port for their business. This is particularly true for those that rely on imported goods to produce their product – they are then at the mercy of both importing and exporting processes. Chief amongst this group are garment exporters: the national production of textiles and accessories (volume and diversity) is nowhere near sufficient to meet their needs. This means that all garment exporters are dependent on imports and therefore on the speed of import as well as export processes. These lengthen the ‘lead time’, i.e. the time between receiving a commission for a batch of garments and their eventual delivery to Europe or the US. Lead time, in turn, is one factor determining the market share and profitability of Bangladesh’s garment sector. Much of the competition from China which it is believed will come following the phase out of the Multi-Fibre Arrangement is due to the greater speed with which the Chinese can get their products onto the market. 2.38 Despite certain privileges for garment exporters (e.g. priority unloading and unloading of containers) they face constraints in both directions. Importing is a slow process: although duty is not payable on imports (because they will subsequently be exported) customs clearance procedures remain lengthy. Export procedures are quicker but in this case the exported goods must reach the mother ship in Singapore or Port Kalang for onward passage to the US or Europe (Chittagong is not a deep water port and cannot accommodate these vessels). The window of time between the mother ship docking and leaving Singapore (one of the most efficient ports in the world) is extremely small and can be missed if there are hold ups in local port operations. The perspective and experience of garment exporters is discussed in more detail in annex 2. 2.39 Because garments are the mainstay of the economy garment exporters have very considerable influence in the port, including through their association with government. This influence is invisible on a day-to-day basis, but can be directly observed when a proposal that seems sensible to others is suddenly blocked or reversed. Overturning the CPA proposal to increase rents for container storage at the port and the ICD is a case in point: it represents a concession to a powerful lobby that is extremely important to the economy. On the other hand it is yet another example of the ‘tragedy of the commons’ – it benefits one party at the expense of overall port efficiency.

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Implicit in this brief stakeholder analysis are many of the institutional reasons for inefficiencies in the port. But to deal with any one seemingly simple issue – port congestion for example – it is necessary to separate out each of the contributing factors. The following section gives an example of an attempt to do this and also seeks to address other frequently asked questions.

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3. FREQUENTLY ASKED QUESTIONS I. Why is there so much congestion in the port?

3.1 The port is congested particularly in the container terminals; this slows down the throughput of freight and is expensive for all stakeholders, particularly importers/exporters with short lead times. Containers stay in the port for long periods; current estimates from the CPA suggest the average ‘dwell’ (wait) time for a loaded import container is still between 20 and 25 days. This compares with international standards of 4 days for imports and 2-3 days for exports. These figures indicate little improvement since 1997 when similar figures were recorded.17 The reasons for this are both technical and non-technical – ship to shore cranes which would allow faster discharge of heavy cargo, rubber tyre cranes would facilitate higher stacking of containers, more comprehensive computerization and greatly improved road and rail links would lessen the time containers spend in the port and therefore free up space for more efficient operations. However, there are also other reasons for the chaos described in the ‘visual impression’ section - these relate to the institutionalization of working practices and should, in principle, be much quicker and less costly to resolve. 3.2 The problem with working practices is that the current system, although detrimental to overall port efficiency, benefits enough stakeholders – or at least does not disadvantage them sufficiently - for it to continue. For example:

• Unstuffing on the quay negates the need to transport containers to a separate area, saving time and money for Shipping Agents and truckers;

• Opening a large number of containers and insisting that these be unstuffed on the quay allows

Customs the opportunity to increase their revenue (formal and informal) – on the basis that the more that are opened the more likely it is that irregularities might be found and charges made;

• The very low tariff rates for storing containers ($1.50 per container after 4 days, with graduated

weekly increases) benefits importers and exporters;

• Rents received by the CPA for containers are a source of revenue. Given that containers for export are going to private sector depots the CPA at least wants to hang on to its rent for the containers it currently stores.

3.3 Having said that, the CPA is the first to see the bigger picture and admit that the current situation is untenable. Individuals from all groups will suggest in private that the port shouldn’t be stuffing, unstuffing or storing containers and it should get back to its core business which is to load and off load vessels.18 However, making even one step towards this overall goal is problematic. Asked what would happen if container rents were trebled immediately one official estimated that about 50% of containers would leave the port the following day. However, as he pointed out, such a proposal by the CPA had already been thwarted by powerful exporters who successfully lobbied to keep rents low. In any case,

17 Dwell times noted then were 17 days for loaded import containers (extending to 30 in busy periods) and 22 days for empty containers (extending to 27 in busy periods). See Mott MacDonald ibid, section 11-17 18 Reference is often made to Sri Lanka where the Minister of Shipping (as the story goes) decided, one day, that the Custom Escorting Law should be abolished. This opened the way for off-dock, private depot storage and heralded an important step in the reform of Colombo Port. However, as reciters of this story admit, Bangladesh isn’t Sri Lanka and the legal framework here is ‘much less friendly’.


and as noted several times in this report, the CPA cannot make such decisions independently but must look to the Ministry of Shipping. In addition, Customs argue that containers cannot leave the port unless duty is paid on the container or a bank guarantee is given as an insurance against theft. 3.4 The above discussion of congestion is simply an example: many other factors apart from congestion affect turnaround times and this analysis could be applied to any one of them. Nor is it to suggest that stakeholder relationships are the only or primary problem – technical constraints are also key.19 Rather the point is that technical and governance issues need to be analyzed together and solutions sought on both counts to optimize efficiency outcomes. II. How does the informal economy work? Who wins, who loses? 3.5 Informal monetary transactions between different port users are intrinsic to every aspect of work in the port. There appear to be no alliances across groups (for example, of a kin, political or locality affiliation) that transcend the speed money/bakshish network. This section attempts to estimate the impact of different types of informal payment on different aspects of port efficiency. The analysis is based on discussions with port users and also on participant observation, i.e. as a result of accompanying individuals who were clearing goods through the port or ICD and watching what happened at each step of the process. 3.6 Informal transactions can be divided into three categories:

• predictable speed money • one-off larger negotiated payments • payments to ensure transfer into particular posts

3.7 In practice the first two merge into each other (speed money is sometimes negotiated) but for discussion purposes it is useful to separate them. (The first dialogue in annex 1 gives a verbatim example of such negotiation.) Predictable speed money 3.8 These are small, regular payments made for facilitating tasks, i.e. for carrying out the job the person is employed to do anyway. They are highly institutionalized in the sense that everyone knows, more or less, what the fixed rate is for each activity. With the exception of first time port users who do not know the rules, speed money is generally paid without much discussion or argument and treated as a fixed cost. 3.9 The number of informal payments required in clearing goods from the port or the ICD is directly related to the number of steps for which a pass, signature, stamp or form of certification is required; a payment is normally required for each step. Estimating the total number of transactions would be easy if each step involved just one actor who had to be paid but most steps involve several actors and therefore several payments. To take an example: an import consignment that arrives at the ICD in Dhaka requires at least 24 different steps to ensure the documentation is in order and the goods are cleared. (The export

19 Nor is it to suggest that there may not be some win-win intermediary solutions. For example it may be possible to get Customs to first agree to allow certain bulk cargoes - food stuffs, scrap metals, cotton, mustard seed – to be stored in off dock areas. This alone, according to those interviewed, might be expected to reduce congestion in general cargo areas by as much as 25%.

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Frequently asked questions

process requires 17 steps.)20 But each of these steps may involve several actors: to break the seal on a container within the ICD or port for customs checking should require the presence of four parties in addition to the C&F Agent: a carpenter/riveter, a Customs official, a security officer and an appraisal clerk. Without the cooperation of all these parties the seal cannot be broken, nor can it then be resealed. The C&F agent will have long been used to the practice of paying small, known amounts to all of them to counter the delay that will inevitably result if he declines to do this. (Negotiation is normally only likely with the customs officer and that will greatly depend on what the container contains – or what it might be assumed to contain.) Multiplying this process by 24 gives some indication of the number of procedures and payments involved in the ICD. 3.10 The amount of money changing hands at each point, although fairly standard, varies considerably according to the activity and to the extent to which the C&F Agent is in a hurry. For a peon to put a seal on a file may require a standard payment of 20 taka (35cents) but to obtain a Keep-Down Slip (giving permission to use a belmet – a piece of equipment to move containers in the ICD) may involve a payment of 200-500 taka. How much is given depends on how quickly the C&F Agent needs the goods (belmets are in short supply). 3.11 The question we asked all stakeholders was whether these informal payments really mattered. Was it not, after all, like an additional tax that customers routinely factor in to their expenses? It may give a comparative advantage to those prepared to pay above the standard rate (and therefore benefit those that could afford to do this at the expense of others) but was it any more serious than this? 3.12 Most stakeholders interviewed had little problem with the fact that they had to make speed payments. This was common practice in all parts of life and not unique to Chittagong port. The practice was so institutionalized that most stakeholders paid up without discussion. It did not, in their view, significantly affect their business. Others however, took a step back and pointed to two significant disadvantages with the system – acknowledging at the same time it was endemic and may be impossible to get rid of. The first of these was that it was inefficient because it maintained an outdated bureaucratic system that continued to exist because it allowed so many people to make extra money. In other words, the bureaucracy became entrenched because of the payments. This led to a proliferation of procedures that were unnecessary and could and should be cut by half. 3.13 The second reason for disquiet over speed payments was the sheer amount of money involved and its impact on the system as a whole. Whilst no-one resented the 20 taka paid to a peon to enhance his salary there was disquiet that some individuals made very significant amounts of money out of speed payments over time. This was particularly the case if they stayed in a lucrative post for many years. Customs posts were seen to be the most lucrative because of the sheer number of clearances being processed each day. Taking export processes alone (where relatively few transactions are required) – and allowing a fairly standard 250 taka a day ($5) total for each consignment – the fact that 500-600 consignments are cleared for export each day means the daily sum accruing to export customs’ teams informally is about $3000 - in the course of a year this adds up to a very considerable amount. (And this is just for exports where procedures are relatively straightforward). In short, it was not that paying speed money was a problem so much as their impact over time: substantial amounts of money were lost to the country (a concern of some) or were unevenly distributed and concentrated in very few hands (a concern of others).

20 Bhuiyan’s ‘Shipping World’, referred to earlier, gives details of each step in the port/ICD and Customs clearance process and we used this as a check to verify our own observations.

17


3.14 That said, speed money payments were not seen as a moral issue. This was because they were paid voluntarily, they were transparent, they were the same for everyone and they were not seen as excessive. One-off larger negotiated payments 3.15 These are much larger payments privately negotiated between stakeholders. They can occur when importers either under-invoice cargo to evade full payment of duty or misrepresent cargo, so that it will be classified in a category that attracts less duty. We did not specifically ask directly about the nature of these payments – and can only note what came up in discussions. Unlike speed payments we did not personally observe them. 3.16 Various practices are reportedly common. Evading the full payment of duty may involve C&F Agents, Shipping Agents, exporters, importers and Customs. An agreement is made that the full duty will not be paid – or the goods will continue to be misclassified and a lower duty rate applied - in return for a significant payment. At other times any one of these parties may see a way to advance their own interests at the expense of some others. For example a C&F Agent knowing that a consignment is under-invoiced may alert Customs himself, having first agreed a mutual division of spoils with Customs. In this case it is the importer that ends up paying the bill with the C&F Agent and Customs as mutual beneficiaries. There were several variations on this theme. 3.17 A second type of one-off payment apparently involves the auction process. High value goods for which very high duty payments are demanded (sometimes legitimately, sometimes not) may mean that the importer is unable or unwilling to pay. After 45 days Customs has the right to auction these goods (this is common practice in all ports). At this point several things can happen. The auction may take place according to procedure with the auction payment going to the NBR as per formal procedure. Alternatively the auction may be delayed, for months or even years, in expectation that an informal payment will be made that ‘benefits’ both parties. It may also be that the importer has already agreed a deal with Customs and is waiting to buy back his own goods through the auction at an artificially low price in return for a commission. This practice should be distinguished from the common (and legal) practice whereby importers speculate on changes in the duty structure for the categories of goods they have imported and themselves delay clearing them through Customs in the hope that tariffs will be reduced the following month. However, even here an informal practice can occur if the importer has an inside track on the new duty rates and has negotiated a price for being furnished with this information (see annex 3 on car importers). 3.18 Other less common and highly inventive ways of making money were reported. We cannot substantiate these and mention just one of them (see footnote).21 This particular story was told with a smile - in appreciation of its creativity and perhaps also because it was seen as normal competitive practice between business people; it did not involve making money at the expense of the public purse. 3.19 In general these types of transaction were condemned by those interviewed. Unlike speed money they were not transparent, involved collusion and sometimes coercion, were illegal and allowed very large amounts of money to leave the public purse. In addition it was thought that because of the large amounts of money involved proceeds were inevitably distributed to those ‘at the very top’. As a result of this it

21 A sugar importer knows that his competitor has sugar on the same ship. His load is discharged first and he rushes to customs. He offers 2000 taka in return for speedy clearance on his own goods and an agreement by the concerned officer that he will then ‘take a nap’ for an hour. Within the hour he has his sugar on the market in Chittagong at 50 taka a kilo. When his competitor’s sugar reaches the market the following day the rate has dropped to 45 taka.

18

Frequently asked questions

was felt that getting rid of these practices would be just as difficult as getting rid of speed payments but for a different reason: those benefiting were also providing an incentive for more senior figures who would have a strong vested interest to maintain the status quo. Payments for transfers 3.20 It was generally agreed that Chittagong is the ‘best’ place to be stationed if the desire is to benefit from the multiple ways in which salary can be enhanced through informal payments. As a result posts are highly sought after and senior posts in some departments are said to command a high price (crores rather than lakhs of taka were mentioned). Having paid for a post it is obviously necessary for individuals to claw back their investment and then profit sufficiently to make their transfer worthwhile. It is this pressure that makes the informal system referred to above so institutionalized - both the one-off, negotiated payments and, it might be deduced, regular speed payments as some of this might be expected to be distributed upwards. Because no individual can be assured of the permanency of their post (transfers can be affected at any time if there is a contender with better connections) then efficient and speedy extraction is a must. Although the three types of practice mentioned here seem separate they are, as the above paragraph shows, interlinked. 3.21 Most stakeholders did not have a clear idea about how the World Bank and other donors might help address this situation – or even whether it should even try to do this. Some important points were made. First, that the World Bank and other donors should first seek to fully understand the situation from the point of view of insiders. There was no point (for example) in thinking that speed money was ‘the’ problem; action against it would be both ineffectual (it would be circumvented) and would hit the wrong target. Second, that if action were to be taken on informal payments then this needed to be done in the context of other reforms, for example, retirement packages and remunerative incentive schemes based on productivity targets. Such schemes would need to be different for each group of stakeholders and would need to be drawn up with their full collaboration and input. Sanctions by a higher body, applied without favoritism would then need to be enforced. Thirdly, that the donors should be aware that its investments were already contributing to informal payments: these were a norm in all sectors. The port might provide major opportunities for informality but it should not be separated out for special action against ‘corruption’. This was an issue that affected all sectors, all levels of society and government. III. What are the main labor and human resource (HR) issues? 3.22 All stakeholders we talked to had strong views about ‘the human issue’ in the port, and by this they meant everything to do with the use of labor and the management and co-ordination of working practices. They felt that significant gains could be made in this direction and the tentative reforms already being initiated by the CPA and agreed to by others (the DWMB for example) showed that different parties were prepared to collaborate and work together even though progress was slow. HR issues (a term used only by the CPA but one we adopt here) was also considered an important entry point to tackling informal payments because it inevitably meant starting with the incentives that were currently on offer and, in changing them, being aware that pay-offs may have to be made to those retired or otherwise disadvantaged by the new system. 3.23 Although there are good signs of stakeholder collaboration on HR issues in the port this is not to imply that there are many issues on which there is complete agreement. However, some issues do appear to have unanimous support. These are:

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• develop a system of formal incentives and productivity bonuses for each group of workers in the port. Over time it was thought that this should begin to replace the speed money system which, though not the subject of much complaint, was annoying because it only guaranteed the task would be done, not that it would be done well. A productivity bonus paid after job completion (and not before as is the case with speed payments) would benefit everyone – and could be paid by the customer, as now;

• undertake a human resource review within Customs (apparently this has never been done). Give

consideration to introducing a remuneration package for all workers over an agreed age (45/50). Replace retirees with young people with a different outlook, appropriate qualifications (graduates where required) with annual appraisals and promotions based on merit. Part of the current problem in Customs is the difficulty in training up those hired 20 or so years ago as lower grade administrators who have progressed up the ranks with only basic literacy. (Trying to teach this group to use computers is not a productive use of resources; they cannot type and they apparently have an aversion to learning to type – they see it as a menial secretarial task.)

• speed up the golden handshake policy of retirement with regard to elderly DWMB workers and

take action against proxy workers. Introduce bonus productivity systems for dock workers; consider allowing Stevedores to hire their own workers on the basis of agreements on labor use, pay rates, insurance for accidents etc. with the Trade Unions.

3.24 Although these three actions have widespread support in the port (although the third is constantly debated) they do not address two of the overarching problems referred to earlier. First, the issue of competition – or rather, the lack of competition. This is not a ‘natural’ concept in the port as it goes against a deeply held belief that employment must also function as a form of welfare provision – given that the state does not fulfill this function. This means that for most stakeholders (except those with international experience of alternative systems) there is a desire to make job opportunities available to the many rather than the few. The rotation system used for DWMB workers and by most other groups of workers epitomizes this concept – a larger number of people are employed than are required but they work for shorter periods (e.g. 16 rather than 25 days a month) but it means they all have some income. The problem with rotational work schemes for port efficiency is that each is managed by just one association which means there is no competition and no employer-employee relationship (except within the CPA). The trick is how to encourage competition – in order to raise productivity – without wholly disbanding the highly relevant concern with equity.22 3.25 The second issues that is not addressed by the reform areas mentioned above is the lack of an overall authority structure in the port able to make HR reforms ‘stick’ and enforce sanctions when necessary. We therefore return to the main problem discussed earlier: despite vested interests different stakeholder groups are now able to agree some aspects of the way forward. However, there is no one authority able to keep an agreed reform schedule on track (assuming one could be negotiated) and to force (if necessary) the different actors to abide by agreed rules. Without an overall governance structure of this type – which can only come with the full backing of government – any of these moves in the direction of reform will falter and time invested in the (inevitably) long process of negotiation will be wasted.

22 The fact that employment is seen as a form of welfare provision in the absence of adequate social protection systems is important and would need to be factored in to any ‘golden handshake’ policy. There may be a link here with work on retrenchment in other state owned enterprises.

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4. TWO SCENARIOS (POSSIBLE FUTURES) FOR CHITTAGONG PORT –

AND THE POTENTIAL ROLE OF DONORS

4.1 What are the different possible futures for Chittagong port? What might realistically be the scenario say, by 2010 – in five or six years time? And how will each scenario come about? How might donors contribute to each scenario? This section gives us the opportunity to summaries some of the points made about possible futures by stakeholders. It does not attempt to be a rigorous scenario planning exercise - this would require extensive economic and trade flow data. Rather, it allows us to ‘free-think’ about the port for a moment and consider the two most obvious possible futures. This, in turn, may help us consider what role donors might play – or not – in the port in future. I. Scenario 1: Minimal/gradual change 4.2 By 2010 efficiency in the port will have marginally increased – or at least will have kept pace with the increasing volume of freight traffic - particularly containers (already increasing at 18% per annum). Most of the efficiencies will have been due to technical improvements, many of which will have been financed by donors. The road and rail infrastructure in the Chittagong-Dhaka corridor will have been improved allowing more containers to go to the new ICD outside Dhaka. New ship to shore cranes will improve discharge times. All export containers will be handled by private depots. Computerization will have been more widely introduced and will have significantly improve the storage and handling of cargo. Customs will be partially computerized – some manual checking will continue. 4.3 These improvements will allow the port to keep pace with the increases in container traffic so that the port will not be any more congested than it is now. The phase-out of the MFA will have had an impact on imports and exports thereby slowing, at least for a while, the rate of increased trade volumes. 4.4 The new berth at New Moorings will be complete and operations will have been contracted out to the private sector. All stakeholders will be watching to see how this pans out. In the meantime the DWMB scheme will have folded with Stevedores now enabled to hire their own workers. The CPA will maintain control of port equipment and of equipment operators. No other significant changes will have been made to working practices. The same monopoly business position will continue as now. The Truck Owners’ Association will have persuaded the CPA to provide land for a terminal park thereby alleviating, to some degree, the congestion in Chittagong town and providing a more reliable trucking service. 4.5 In this scenario donors will have continued to invest in the port in much the same way as they do now – in the form of investments for infrastructure and transport improvements. II. Scenario 2. Rapid and comprehensive change 4.6 In this scenario the same technical investments will be made as in scenario 1; however, very considerable differences will have been made to port management, and to the way labor is organized and managed.


4.7 The Ministry of Shipping and Ministry of Finance will have agreed (with coordinated donor encouragement) that the first priority is to change the management structure of the port in order to progress rapidly to a landlord model (with government withdrawing from port operations but having a strong regulatory role). However, in order to take account of local sensitivities and engage all stakeholders a two year reform program will have been agreed: 6-12 months to consult with stakeholders on modalities and a further 6-12 months to draw up the principles and legislative framework to allow reforms to be implemented. A highly skilled negotiator will have been contracted to advise one or two well respected national figures, at least one of whom will be a Chittagonian. Together they will comprise a core group who will co-ordinate and facilitate a larger representative stakeholder team. This will include all the important actors in the port and those outside, e.g. the Chamber of Commerce, the Bangladesh Garment Manufacturers’ and Exporters’ Association (BGMEA), the Ministry of Shipping (MoS), the trade unions, the Mayor of Chittagong. The core group and some of the stakeholder team will have begun by undertaking visits to other South Asian ports in order to gain first hand knowledge about how reforms have worked there. The work of the core group and the visit will have been funded by donors. 4.8 The core group and the stakeholder group will themselves work out the modalities for reform within this organized structure. They will have agreed an end date with the Ministry of Shipping who will have made a commitment to quickly expedite the legal reforms necessary for change to be implemented. An agreement would have been reached with the National Board of Revenue (NBR) to include aspects of Customs processes and they would be an intrinsic part of the process. 4.9 By year 3 the necessarily legislative framework will be in place and the change process will have begun. The landlord principle will be achieved but with specific features that make it relevant to the circumstance of Chittagong port. 4.10 Donors will have made the same infrastructure investments in the port as in scenario 1. In addition they will fund, in a coordinated way (e.g. through a joint donor basket) the TA required to deliver the consultation process. Their most important role will therefore be:

• to encourage and support the relevant parts of government – MoS, Finance, the NBR - to get the initiative started and commit to taking the necessary action on legislative reform;

• to finance the necessary preparatory work – including visits by stakeholders to successful

South Asian ports

• to finance the skilled negotiators and one or more senior people who command respect amongst stakeholders (and do not have a self-interest in the reform itself). This financing will extend for however long the consultation takes, e.g. 6-12 months.

4.11 Importantly such funding will not be linked to ongoing sector lending nor to lending for broader economic reforms (e.g. future development support credits.) In other words, progress on the reform process will not be made a condition of loans given for other purposes. This de-linking will be important to waylay the suspicion about the donors’ plans for ‘their port’. The perception that donors were associated with the bid to privatize container operations made by the Stevedore Services of America is unfortunate. Chittagong successfully resisted this bid – it was thrown out of the High Court on the basis that the bid process was not transparent. However, the real reason for opposition was that it had not been properly discussed by those it would affect; it was seen as a top down attempt to impose a non-Bangladeshi model of reform. De-linking financing for the reform process both from lending to the trade and transport sectors and from lending for broader economic reforms will help restore faith that the donors’s intention is to support home grown processes and decision making, not insist on its own.

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Two Scenarios (Possible Futures) for Chittagong Port – and the Potential Role of Donors

Whilst acknowledging that the above paragraphs are a ‘back of the envelope’ scenario exercise they do set out the points that stakeholders made about the potential role of donors in a reform process. Basically they can be reduced to two options: either ‘do more of the same’ on the basis that current investments in the transport sector are in any case valuable. Or, do more of the same and in addition, commit to supporting a reform process, i.e. make a concerted (and donor co-ordinated) effort to raise issues in dialogue with government and agree to commit funds to get a reform process underway and keep it on track.

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ANNEX 1. THE PORT - ISSUES FOR GARMENT EXPORTERS

A1.1 The majority of Bangladeshi garment exporters also import raw materials for the production of export items. This means these exporters have to deal with the bureaucratic procedures and associated informalities related to both import and export at the Chittagong Port (CP). The processes involve fairly large numbers of administrative steps, especially at the import stage. These are also time consuming (albeit much less than for imports on which duty must be paid) and informal transactions (informal dealings and payments) tend to overwhelm the formal transactions (bureaucratic procedures and formal fees). Informal Processes Related to Imports A1.2 The process of clearing imports for the garment sector (textiles and accessories) takes from four to seven days. For experienced and well connected exporting firms the duration of the import process is three to four days. If the commodity imported is considered ‘abnormal’ (minor or major mistakes in the documents) then the time to complete the administrative process may increase. For instance it might take two extra days to obtain the delivery order if there are minor discrepancies between the Import General Manifest (which specifies the ship’s cargo) and bank documents. To solve the problem, the Clearing and Forwarding (C&F) agent will make informal payments to the concerned authorities and then bill the amount to the firm showing this as a ‘miscellaneous’ item in the invoice. On average the amount tends to be 10-15% of the total service charge of the C&F. A1.3 Generally, for ‘normal’ items, the nature of informal dealings with the relevant authorities and the rate of informal payments are routine and predictable. For ‘abnormal’ items, informal transactions lack predictability but such informal demands can be managed without much hassle if the party is willing to make higher informal payments. Standard rates of informal payments for specific steps in import process for one particular consignment are presented below:

• Noting Tk.150-190 • Assessment Tk. 300-400 • Outpass Tk. 200 • Bond Tk. 200 • Delivery (open truck) Tk. 700 • Delivery (covered van) Tk. 400

A1.4 The total informal payment (after including steps such as certification, examination) will be around Tk. 2000-3000 for containers whose cargo is for more than one consignee (LCL) and Tk. 3000-4000 for containers whose cargo is all for one consignee (FCL). Informal Processes Related to Export A1.5 Procedures relating to export have been largely simplified and rationalized in recent years. Currently it only takes two days to complete the bureaucratic formalities. Some of the important functions, such as Utilization Declaration which used to be done by the custom department previously, are now handled by the Bangladesh Garment Manufacturers’ and Exporters’ Association (BGMEA). This has reduced transaction time substantially. But still the export processes cannot be completed without informal dealings and payments. As for imports, the informal transactions here are predictable and


payments have standard rates for normal consignments. For abnormal consignments higher informal rates will be demanded to solve the problem but the rates are predictable. For instance, to settle the issue with the Passbook (discrepancy between export volume and imported raw materials) custom officials will demand Tk. 1000 for each entry/document. Similarly standard rates exist for resolving the problems related to Utilization Declaration. Standard rates for informal payments are given below:

• Custom Tk. 500 (normal document) • Custom Tk. 1000-2000 (abnormal document) • Examination Tk. 700-800

Lead Time A1.6 For a garment exporter lead time is a critical issue. This refers to the period between the commissioning of the order by the foreign buyers and shipment of export items to the final destination. Currently standard lead time is about 100-120 days for exporters who import raw materials and accessories from foreign countries. The salient components and the days required (based on a concrete case) after the commissioning of the export order are given below:

• Bank related activities (back to back LC etc) 2-3 weeks • Placement of order to the supplier (raw materials) according to the

export order specification 7 days

• Production of goods by the supplier 14 days • Shipment of goods by the supplier (Taiwan to Singapore) 7 days • Shipment of goods by the supplier (Singapore to Chittagong) 7 days • Import formalities at the Port 7 days • Transporting to Dhaka 1 day • Manufacturing of export items 28 days • Finished product going back to Chittagong Port 1 day • Export formalities at the Port 2 days • Shipping to Singapore 5 days • Shipping (mother vessel) to US/Europe 21 days

Required Reform as Suggested by the Exporters A1.7 To make garment exports competitive, especially in the post-MFA situation, reduction of lead time is critical. Garment exporters suggested that such reduction in time will require institutional as well as infrastructural reform of Chittagong Port. Below are the reforms suggested for the port and other institutions as they relate to each component of the lead time:

• Simplification and rationalization of bank related procedures and providing special facilities for the exporters will reduce banking time from current 2 weeks to 2 days

• Efficiency of the exporters due to banking procedural reform and other port related reforms would increase trust and mutual understanding between the exporters and the foreign raw material suppliers. This will reduce the supply related negotiation time from current 7 days to 4 days

• Time to produce raw materials/accessories remains the same (14 days) • Direct vessel from the origin country (usually Taiwan, China, Hong Kong) to Chittagong Port

could reduce the current 14 days (7days+7days) of shipping time to 7 days. This would require substantial infrastructural improvement to Chittagong Port (dredging of river etc.) or, alternatively, the building of a new port altogether. The point that exporters made is that

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Annex 1. The Port - Issues for Garment Exporters

Bangladesh ideally needs a mother vessel-oriented seaport – this would significantly reduce the lead time

• Substantial reduction of time to complete import related facilities is possible through, a) technical upgrading of the related processes (use of scanners to speed up customs operation, use of modern cargo handling equipment, computerization etc), b) physical expansion of the port, c) lowering the number of procedural steps and d) allowing port operation 24 hours/day and 7 days a week. These reforms would reduce time related to customs clearance and other relevant functions from the current 7 days to 2 days

• There could also be a reduction of time in the manufacturing process (28 days). In fact enhancing efficiency through the reforms of processes and institutions related to other stages would actually provide time for better quality export items to be produced – a high priority in a post MFA situation

• The finished product going back to the Port in 1 day is the minimum possible and this is fine • Customs and other procedures related to export could be reduced from the current duration of 2

days to 1 day. This can be done by enhancing efficiency of the officials and related private actors (shipping agents for instance)

• If a deep sea port was constructed in future so that Chittagong Port could accommodate mother vessels then an additional reduction of 5-7 days from the total shipment time is possible.

A1.8 The above reduction in days would lower the existing lead time from 120 days to around 80 days. For Freight On Board (FOB) the lead time will come down to 59-60 days (80 days-21 days of US/Europe shipping). Clearly Port reform is a central concern for the exporters as is the creation of central bonded warehouses and improvements in backward linkage industries. Together these reforms would allow Bangladesh exporters to survive and operate efficiently in the post-MFA period.

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ANNEX 2. USING THE PORT TO THEIR ADVANTAGE – DECISIONS

BY CAR IMPORTERS

A2.1 Automobiles, unlike many other imported goods that require a feeder ship, enter Chittagong Port jetty directly from the country of export on a special kind of medium sized vessel. The process of unloading automobiles is also faster than other goods, for instance, about 475 automobiles can be unloaded in 10-12 hours since these are driven out from the ship to the jetty. The automobiles then are taken to the ‘dumping’ area near the jetty and eventually to the port sheds specially designated for automobiles (P and F sheds). The transfer of automobiles from the dumping site to the sheds might take 45 to 60 days since there are hardly any spaces for new automobiles in the port sheds. These sheds usually remain packed with 700-800 automobiles at any one time. But importers can complete the custom formalities in a few days and take away their automobiles from the dumping site. As explained in the second section below, a few large importers (who actually import most of the automobiles) tend not to use this opportunity and continue to keep the automobiles in the dumping area as well as inside the sheds. This behavior of a few importers largely explains the reason behind congestion inside the sheds. The Information Process A2.2 The entire process, from unloading of the automobiles from the ship to driving them out of the Port gate, is largely governed by regularized informal rules (predictable informal transactions, standard rates of payments at different sites, predictable time needed to complete each transaction). Some of the salient components of the overall informal process are mentioned below:

• Prevention of theft of valuable auto parts during unloading: a) 1300-1500 CC car Tk.1000 b) Jeep or higher grade Tk. 2000-2500 c) Brand name auto, latest model Tk. 5000+

[payment is given to the Khalashi Sardar who then distributes among drivers]

• Duty assessment, custom clearance, P/F Sheds formalities and gate custom/security:

a) requires 20-22 signatures b) time required-2-3 days but duration can be cut short through appropriate informal

payments c) informal payment Tk.3000-5000 (for 1300-1500 CC)

Importers Incentives to Store Automobiles in the Port A2.3 There are two basic reasons for storing automobiles inside the Port for an extended period of time:

a) speculative motives b) immediate lack of funds to release the automobiles

A2.4 Large importers having connections with the custom officials (both in Dhaka and Chittagong) confidently speculate on the future market prices of automobiles based on the insider information related


to fixing of duty by the government. It was thought that about 10% of the importers have such privileged access to information and they tend to be the large importers. Altogether they handle 70-80% of the total cars imported. Given the insider information the logic for storing the car is simple: to get the automobile out of the Port immediately if the duty is going to increase and store it if the duty is going to fall. Importers carry out cost-benefit analyses by factoring various costs associated with storing of the automobiles for months inside the Port (wharf-rent, bank interest, risk of auction etc.). There is a strong incentive for storing since the Port charges are low and risks of goods being auctioned off can be taken care of by paying predictable informal payments within a known period of time. The process can be clearly understood from the following case of a real importer: A2.5 The importer X had 29 cars arrived in the Port on 22 May. He decided not to go for the custom formalities (noting and assessment) since he was told (by insiders officials) that duty would be reduced by 5% in the coming budget to be announced on June 10. He made the following cost-benefit analysis: given the reduction on duty he would save 7 lakh taka on 29 cars. His bank interest would be 89 thousand taka for the period between 22 May and 10 June. Port charges + wharf-rent would be 13, 500 taka. This means his ‘investment’ for speculation comes to 89 +13,500 i.e., 102,500 taka. Even then his speculative profit margin would be slightly less than 6 lakh taka. The importer later confirmed that he made the right choice. A2.6 The above case covers a period of 18 days. What happens when one needs to wait several months to get better market deals? In this case one needs to take into account not only the Port charges but also the risk of auction. Given the low port charges and the existence of standard informal rates to solve the problems related to auction one can easily opt for keeping automobiles within the Port for a longer period. The cost of an importer who has decided to keep a car for 75 days will be the following:

1. Port charge (first 15 days only) 32 taka each day 2. Wharf-rent (first 15 days free) 50-75 taka/day + 15% VAT [payment for between 16th –45th days only since the car will be auctioned off on the 46th day] 3. Officially the car can be taken off the auction list within 30 days. The official fee for such action ranges from 500-2500 taka (fees based on the prices of the car). 4. Informal payment: a. for the first 3 days of the auction period: 2000 taka b. on the 29th day: 5000-10,000 taka [with appropriate informal payment the car can be taken off the auction list in one day].

A2.7 Clearly, given the official rules, low Port charges, collusion between custom officials and importers and the existence of predictable informal transactions there are strong incentives for importers to use the Port as a storage facility.

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ANNEX 3. PROCEDURES WITHIN CUSTOMS The Proliferation of Signatures

A3.1 In the past (the old procedure) the number of signature required for custom clearance was between 49 and 72. After procedural reforms initiated in the late 1990s, the number of signatures required were brought down to 5-7. Follow-up studies done by Customs actually found 11-13 signatures were still the norm, which the authority considered as ‘tolerable’. Our team members have found that in actual practice, the number of signatures required varies from 20-25. Important reasons behind the proliferation of signatures beyond formal requirements are the following:

• A customs official who is supposed to do four to five types of closely related functions actually does one and leaves other functions to be completed by subordinate support staff. For instance, the official will only sign the document and other functions such as writing notes; verification and putting a seal etc. will be done by other support staff. Each of these functions is undertaken by different tables having different informal price tags attached to them.

• It was thought that computerization of procedures would do away with the need for multiple

signatures since all information required would be in the system and one official would be able to do the necessary verifications and complete the process. Such computerization has not been implemented successfully in the port because officials are generally not computer literate and they consider typing too low a function to be done by an officer.

Extent and Nature of Informal Payments A3.2 Customs now have a fast track process for exports. About 99% of the export entries get clearance during the same day. Each Appraiser clears around 70 entries a day, which means 70 signatures every day. A Principal Appraiser needs to sign off about 280 entries per day since he supervises 4 Appraisers. Clearly the tasks involve long hours and completion of the job means working 3-4 hours beyond the official office hours. One of the strong incentives for the officials to work these extra hours is the high amount of predictable informal payments that they receive for completing the assignments in time. The payments rates at the time of writing are the following:

Total informal payment for each export entry Tk. 250 Payment for the Principal Appraiser per entry Tk. 100 Total payment for Principal Appraiser/day - 280x100 Tk. 28000 Payment for the Appraiser per entry Tk. 150 Total payment for each Appraiser/day - 70x150 Tk. 10500

A3.3 In the case of imports, informal payments are much higher and the rates are usually based on the price of the imported goods. For an importer, the average payment amounts to Tk. 1500 if the document does not have any problem. If there is any problem with the documents then the rate may vary from Tk. 2000 to 100,000 and will depend on the nature of bargaining with the relevant officials. Around 90% of the informal transactions are settled at the Principal Appraiser and Appraiser levels.

Im

proving Trade and Transport Efficiency – Understanding the Political Economy of Chittagong Port

32

The Current State of Reform of the Customs Administration A3.4 So far the reform initiatives have mainly focused on the simplification of procedures and modernization (essentially computerization) of the custom functions. As yet no studies have been done on the human resource aspect and although an open secret, problems of informality have never been addressed. The question of making formal transactions transparent (through new institutional design) has been addressed to a certain extent and in this regard experimental models of transparent official procedures have been tested in two custom sites (Benapole and Kamalapur ICD) with some success. This has not yet been tried in Chittagong Port Customs. A3.5 Initiatives taken in Benapole and Kamalapur ICD and close monitoring of the ongoing reforms in those sites indicate that commitments to governance oriented reforms do exist among senior officials of the Custom department and determined efforts on their part may bring positive results. For effective and sustainable governance reform one needs to also understand the forces for and against such reform. One important source of resistance against transparency in the custom process tends to be the ‘middlemen’ such as clearing and forwarding (C&F) agents who stand to lose from such initiative. Large businesses that regularly collude with Customs to carry on activities are other formidable sources of resistance to reform. Both of these actors are well entrenched in the system, have powerful allies in the policy making bodies and in the recent past have successfully thwarted reform efforts initiated by the NBR. Carrying forward the reform may require minimizing the role of the ‘middlemen’ in the custom process. Importers and exporters can directly deal with Customs and formal rules exist in this regard. Businesses have tried this direct route in recent years but have faced interference and obstacles (false complaints against imported consignments, for instance) created by the middlemen so they have gone back to the usual practice of using intermediaries. The influence of these powerful and well connected middlemen will need to be neutralized if reform initiatives are to be successful.

ANNEX 4. STAKEHOLDER LINKAGE MATRIX (NATURE OF RELATIONS)

A B C D E F G H I J K L M N M N O

Chi

ttago

ng P

ort A

utho

rity

(CPA

)

Stev

edor

s

DW

MB

Cus

tom

s

CB

A

Impo

rter

/Exp

orte

r

C&

F A

gent

s

Ship

ping

Age

nt/L

ines

Polit

ical

Par

ties

BG

MEA

Trad

e U

nion

s

Mer

chan

t Lab

ours

Truc

k D

river

s A

ssoc

.

Truc

k O

wne

rs A

ssoc

Priv

ate

Con

tain

er D

epot

s

Jetty

/Cus

tom

Sar

ker

Con

trac

tor/M

iddl

emen

1 Chittagong Port Authority (CPA) xxx xx x xx xxx xxx xxx xxx xxx xx xxx x x x xx2 Stevedors xx xxx xxx x xxx xxx x xxx x x xxx xxx3 DWMB xx xxx xxx xx xxx xxx4 Customs xx x xxx xxx xxx xxx xxx xx xxx xxx5 CBA xxx xxx x xxx xxx xxx xxx xxx6 Importer/Exporter xxx xxx xxx xxx xxx xxx x x7 C&F Agents xxx xxx xxx xxx xxx xxx x x xx xxx xxx xxx xxx8 Shipping Agent/Lines xxx xxx xxx xxx xxx9 Political Parties xxx xx xx xxx xx xx xx xxx xxx

10 BGMEA xxx xxx xxx xxx11 Trade Unions xxx xxx xxx xxx x xxx xxx xxx xxx xxx12 Merchant Labours xxx xxx xxx13 Truck Drivers Assoc. xxx xxx xxx xxx14 Truck Owners Assoc xx xxx xxx xxx xx xxx15 Private Container Depots xxx xxx xxx xxx xxx xxx xxx xxx xxx16 Jetty/Custom Sarker xxx x xxx xxx xxx17 Contractor/Middlemen xxx xxx x xxx xxx

No stars - No institutioal relationshipx - Know of each other xx - Interact xxx - Regular and effective interaction.

Light grey squares show opposition between stakeholdersDeep grey squares show support which could be strengthened to enhance Chittagong Port

ANNEX 5. STAKEHOLDER LINKAGE MAP

Legend: Influential relations

Normal and regular relations.

Chittagong Port Authority (CPA)

The Dock Labour Management Board (DWMB) and dock

Workers

Merchant Labours

Stevedores Truck

Drivers

Clearing and Forwarding

Agents (C&F)

Shipping Agent/ Shipping Lines

Private Container Depots

Customs

Importers/ Exporters

Trade Unions

Truck owners

Collective Bargaining Agents (CBA)

Political Parties

BGMEA

Jetty Sarker/ Custom Sarker

Contractor/ Middlemen

Railway

ANNEX 6. ATTITUDE CHART: WHAT NEEDS TO BE DONE IN THE PORT? THE VIEWS OF STAKEHOLDERS

A6.1 This chart is a summary of (largely verbatim) comments about the reforms that different stakeholder groups think are required. Despite one or two differences of opinion within and between stakeholder groups there are substantial areas of agreement.

INDIVIDUAL STAKEHOLDERS

THEIR COMMENTS ON THE TYPE OF REFORMS NEEDED

CHITTAGONG PORT AUTHORITY

ON INSTITUTIONAL REFORM Introduce the landlord concept so that competition increases Aim to make the port more like Bombay (‘the Bombay port system is great and we should follow their system’) Give the CPA more financial and management autonomy (‘We cannot even appoint a peon without the Minister’s approval’. ‘We cannot purchase what we need’) Remove the CPA Chairman from the DWMB chairman post (presumed implication – because he has no real power in that position) Reduce the Stevedore’s control and establish the CPA as the overall authority Stop the 3 in 1 concept (‘almost 40% in the port’). i.e. the system where some shipping agents, C and F agents and stevedores are the same person ON LABOR Abolish the DWMB (‘laborers use the ID cards of others and give 50% of their speed money to the real owner’) Extend the ‘golden handshake’ policy (implication: to reduce the number of/phase out DWMB workers) Reduce the number of trade unions Allow Stevedores to appoint their own laborers so that they can control them Introduce performance based incentives for all workers (‘to reduce bribes’; ‘to motivate labor to adapt to changes or reforms’) Set up training programs for all workers Resolve the conflict between merchant laborers (the importers’ laborers) and dock laborers (managed by the DWMB) OTHER ISSUES Introduce reforms that allow Full-Container Loads to be a door to door operation. (‘Unstuffing should not be done in the port’) Computerize every sector of the port Increase the number of CPA engineers

DOCK WORKERS

Introduce institutional reforms


INDIVIDUAL STAKEHOLDERS

THEIR COMMENTS ON THE TYPE OF REFORMS NEEDED

MANAGEMENT BOARD

Introduce shore protection and dragging in the port Further develop transportation systems

STEVEDORES’ ASSOCIATION

Allow Stevedores to appoint their own labor without any outside interference Revise the ID card system (currently Stevedores are bound to recruit from the 1435 port ID card holders) Privatize the operation of equipment (implication: so it is not controlled by the CPA) Privatize all container operations (implication: allow private companies, not the CPA, to deal with import as well as export containers)

CLEARING AND FORWARDING AGENTS

Simplify customs procedures (to avoid the continuing proliferation of signatures required - and to stop the increasing demand for speed money) Duty structure currently consists of 4 slabs (0, 7.5%, 15% and 25%). This should be revised and there should be 0 and two other slabs Door to door delivery system should be established There should be private warehouses Port advisory committee is currently inactive. This should be revived. Local MP should be included in the committee.

BANGLADESH SHIPPING AGENT ASSOCIATION

Custom Act of 1969 should be upgraded Tariff should be reduced Reduction of the penal rate of container in the port Installation of scanner Speeding up of the process of auctioning of containers CPA should address the current shortage of pilots and necessary equipments in the port

36

Annex 7. List of Trade Unions in Chittagong Port 37

ANNEX 7. LIST OF TRADE UNIONS IN CHITTAGONG PORT Serial

No. Workplace Name of the Trade Union Employer

1. Chittagong Port National Labor League (Awami League)

2. Nationalist Labor Party (BNP), CBA 3. Chittagong Port Islami Labor Association 4. National Labor Party (Ershad) 5.

CPA

Chittagong Port Trade Union

CPA

6. Chittagong Port Dock Labor League 7. Dock National Labor League 8. Chittagong Dock Nationalist Labor Party

(BNP), CBA 9.

Dock

Chittagong Port Dock Trade Union

Stevedore

10. Merchants Chittagong Port Merchants' (C&F Agents) Trade Union (CBA)

C&F Agents Association

11. Coaster Hatch Chittagong Coaster Hatch Contractor Trade Union

Coaster and Licensee Association

12. Chittagong Port Marine Contractors Trade Union

13. Chittagong Port Marine Contractors Labor Alliance

14. Chittagong Port Marine Contractors Labor League

Marine Contractors Association

15.

Marine

Chittagong Port Dock Vacubator Labor League

No Employer

16. Chittagong Port Dock Vacubator Operation Labor League

17.

Vacubator Labor

Chittagong Port Dock Vacubator Operation Trade Union

No Employer

18. Stevedoring workers

Chittagong Port Agents Stevedores And Contractors Employees Union (CBA)

Stevedore

19. C&F Workers Chittagong C&F Agents Workers Association (CBA)

C&F Agents Association

20. Dock Workers Management Board Trade Union (CBA)

21.

Dock Workers Management Board Dock Workers Management Board Labor

Association

Dock Workers Management Board

22. L M D Labor L M D Trade Union Chittagong Chamber of Commerce

23. Chittagong Port Shipping Agents Stevedoring Container Lashing/Unlashing Labor League

24.

Container Lashing/Unlashing Labor Chittagong Port Shipping Agents Stevedoring

Container Lashing/Unlashing Trade Union

No Employer

25. Truck Labor Chittagong Port Transport (Truck) Labor Trucker Owners

37


Serial No. Workplace Name of the Trade Union Employer

Union Association 26. Dock Port Labor Worker Federation Consists of both

Port and Dock 27. Federation Chittagong Port Related Labor Worker

Federation Consists of both Port and Dock

28. Patenga Ship Goods Loading/Unloading Labor and Worker Union

No Employer

29. Bangladesh Shipping Corporation Sea mans Association

30. Bangladesh Ship Traders Association 31. Chittagong Container Terminal

Implementation and Unemployed Bargaining Association

32. Dhaka ICD Trade Union (CBA) 33.

Loading/Unloading Labor

Food Transport Contractor Workers Association

??

Source: Official list as held by CPA, June 2004.

38

World Bank Bangladesh Development Series publications

1. Bangladesh PRSP Forum Economic Update – Recent Developments and Future Perspectives, paper no 1, November 2005.

2. End of MFA Quotas: Key Issues and Strategic Options for Bangladesh Ready Made

Garment Industry, paper no 2, December 2005.

3. Bangladesh Country Water Resources Assistance Strategy, paper no 3, December 2005

4. Comparative Advantages of Health Care Provision, paper no 4, December 2005

5. Targeting Resources for the Poor in Bangladesh, paper no 5, December 2005

6. Improving Trade and Transport Efficiency – Understanding the Political Economy of Chittagong Port, paper no 6, December 2005

7. Revitalizing the Agricultural Technology System in Bangladesh, paper no 7, December

2005

All Bangladesh Development Series papers are available at www.worldbank.org.bd/bds

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