Abstract

The word Demurrage itself explains the cost imposed on the consignee or owner of goods for delays beyond the free days which is called lay time in legal terms but due to late clearance and many more related issues shipper and consignee both suffer. Although, the courts of Pakistan grant a stay to the consignee for non-payment of demurrage under section 14-A custom Act yet ignore the fact that the doctrine of privity also operates in contracts, as both the shipper and owner of the goods sign the terms and conditions regarding the payment of demurrage, as in every contract lay time is always provided to the owner of the cargo. However, every cargo owner is not always entitled to a stay on nonpayment. Here the barrier or issue of less trade arises. This article explores the legal framework for Demurrage and the issues involved in its application in Pakistan.

Key Words

Demurrage, Maritime Law, International Trade, Legislative Framework, Cargo, Ports, Contracts, Compensation 

Introduction

There are many gaps and a lack of development in shipping law in Pakistan. Pakistan is a hub of natural resources as a gift bestowed by Allah Almighty. In order to tap the maritime resources Pakistan can develop a robust legal framework by enactment and laws into one codified form as other countries have done such as Singapore, the Netherlands, and many others for maritime trade but unfortunately this legal domain has been neglected in Pakistan.

The changing maritime circumstances urge the change and reforms in its legal setup as well. Demurrage term is used in shipping law to explain the monetary benefit to shipping lines on goods that stay for longer than the scheduled time at a terminal. The maritime law of Pakistan is inconvenient and bulky as it is scattered into numerous statutes regarding the procedures and formalities of the entrance, staying, and departure of ships from port or terminal as well as clearance, regulations, and inspections. This causes barriers and delays in unloading the cargo and incurs an extra ordinary burden on both the shipping line and the owner of the goods which relatively hinders the smooth handling of cargo.  This delay creates cost which is called demurrage and differs on the vendor, warehouse, port terminals, and stations as enforced by the port officials. No amount of laytime is a policy that has to be followed by each institution. Lapse of lay time or free time which is usually three to seven days is also mentioned in the contract signed by both parties and facilitated by each port.




The Karachi Port 

The Karachi port was established by the East India Company in 1857. The port was initially administered by the Karachi Harbor Board until 1886 when an Act was passed to establish Karachi Port Trust which was made effective in 1887. The Trust is administered by a board of trustees comprising a chairman and ten trustees. The chairman is appointed by the federal government thus KPT functions as a federal agency. The chairman functions as a chief executive officer. Whereas the ten trustees are divided between the public and private sectors. Thus, five trustees are nominated by the federal government while the remaining five are elected by various private organizations to represent them in the board of trustees. 




The Qasim Port

Port Qasim Authority was established in 1973 under the Port Qasim Authority Act 1973.  Port Qasim also has the same issue in the supply of LNG as a limited number of bays and small channels cause delays and in response, demurrage costs are imposed.  To resolve this issue there is a need to enhance the space and deepen the channels to minimize the financial loss to ship operators as well as to make a smooth passing of the traffic.




The Gwadar Port & China Overseas Port Holding Company 

On the contrary, the port of Gwadar provides a tremendous way to connect the Asia trade into one-way passage to mitigate the traffic at traditional ports. The Federation of Pakistan Chambers of Commerce (FPCCI) and China Overseas Port Holding Company (COPHC) are working to maximize the capacity as well as to facilitate its services to the maritime trade at a competitive price including Afghan transit cargo with the following details:




Free Zone Facility

Gwadar Port has developed an exclusive Free Zone Facility, the largest FREE ZONE area of more than 924 hectares available to accommodate Bonded Warehousing, Manufacturing, International Purchasing, Transit and Distribution, Transshipment, Commodity Display, and Supporting Services including Business Office, Customs, Financial, Information, Hotel, restaurant, entertainment, medical etc.




Gwadar Tax Exemptions Policy

The government of Pakistan has also introduced the Gwadar Tax Exemptions policy. A Tax Holiday for 20 years for all Federal, Provincial, and Local taxes, duties, and charges or levies are exempted which include: Corporate Income Tax, Income Tax on Interest Income on loans acquired, Sales Tax, Stamp Duties, Duties on ship bunker oils, Import duties on all imports for 40 years with the conditions applicable.

Free Zone Businesses include Container yards, Bonded Warehousing, Ambient/Temperature controlled/Refrigerated storage facilities, International Purchasing, Transit & Distribution, Packaging / Labeling, Stuffing & De-Stuffing, Trans-shipment, Light end-assembly & re-assembly, Imports & exports, Value added exports and Value addition to imports.




Gwadar Port Authority Ordinance 2002

The port is regulated by the Gwadar Port Authority established under the Gwadar Port Authority Ordinance passed and made effective in 2002. The authority has also been delegated power to make rules and regulations in service of the said ordinance. The ordinance also established a board comprising the chairman of the said authority and members. 

Corporate Social Responsibility 

As global corporate citizens, COPHC has contributed to the development of the infrastructure of the communities in which China's Overseas Port Holding Company operates. The corporate body respects humanity and works to raise the standards of living of the locals and lend them a helping hand whenever needed. The institution has provided support to various sectors of the country which includes, education, health, environment, and employment opportunities.




Legislative Framework for Demurrages

Contractual Basis and Legal Principles

Demurrages in Pakistan are mainly regulated through contractual agreements such as bills of lading and contracts of charter parties in which terms and conditions are expressly mentioned regarding the application of demurrage fees. Such a contract specifically mentions the laytime-free period and the time when demurrage charges start to be applied. Rainey, S. (Ed.). (2019).

In Pakistan, the cases of demurrage are tackled through ordinary law of contract, which may be weighted by international agreements like the Hague-Visby Rules. The state of Pakistan does not have a single uniform code of marine. (United Nation, 1980).

However, all these applications do not specifically provide any clear provisions for demurrage cost but these treaties only offer guidance for liabilities and transportation of goods with caution limiting its sphere within the local law boundaries which is necessary to be applied when dealing with demurrage provisions. (Hague-Visby Rules.)

Challenges and Gaps

Technological Integration and Industry Practices

While digital platforms and automated tracking systems have prospects to improve demurrage management, infrastructural and regulatory support may hinder their inclusion into Pakistani maritime operations. (Ahmed, F. (2020)

Given the effect of regional trade norms and economic situations, industry practices in Pakistan also have a major impact on demurrage management. (Zaidi, H. (2021) Aligning these procedures with global norms can enhance demurrage operations' effectiveness and openness. Ministry of Law and Justice, Government of Pakistan. (2021)

Strategic Considerations and Recommendations

Enhancing Contractual Clarity and Legal Awareness

Maritime industry stakeholders in Pakistan should improve contract clarity and standardize terms with worldwide best practices to maximize demurrage management. (Hasan, A. (2022)

By inserting unambiguous, unequivocal terms and conditions in contracts regarding laytime calculations and rate of demurrages as well as procedures to resolve the dispute if arises. 




Capacity Building and Technology Adoption

To minimize disputes and handle demurrage matters it is imperative to build the capacity between the shipping sector including shippers, agents, owners of goods, ship owners, and legal experts by insertion of modern technology techniques for the management of demurrages like the placement of blockchain technology to improve shipments efficiency and transparency and secure documentation. (Blockchain in Maritime Consortium. (2023).

Conclusion

Reinvigorating Pakistan's Seaports: A Call to Take Prompt Action

The structure of Pakistani ports is potentially important for international maritime trade being centers of economic augmentation and international profits. Unfortunately, if we have insight into the current situation—a reflection of non-awareness and lack of knowledge, no useful policies, and old regulations—an emerging need of today's trade requires prompt improvements and actions. Karachi Port Trust (KPT) familiar as "the gateway to Pakistan," is busy handling bulk amounts of shipments but still faces many obstacles including mass space limitations due to misappropriation by the land mafia and complex legal matters. As a consequence, the freight handling capacity is not up to the mark, which impacts efficiency and increases the cost. 

Demurrage costs at ports like the Karachi Port Trust (KPT) escalate as a result of operational inefficiencies that are worsened by land grabs and litigation. These constraints limit the capacity of ports and hinder the timely handling of cargo, thus requiring urgent adjustments to improve efficiency and reduce cost burdens on importers and exporters.

In this regard, a comprehensive approach is necessary to address the issue of demurrage. The shipping industry of Pakistan needs to be modernized by harmonizing the international treaties in order to fill the gaps and remove obstacles as well as improve the regulatory framework in the current system of the maritime industry. Such steps lead the sustainability in the economy of Pakistan as well as develop it as a master in maritime trade in the locality, creating growth-oriented doors.

Furthermore, Gwadar Port is a future mega port; it sees itself as an evident cruise ship destination from Europe not only this also strengthens tourism which is beyond its logistic objectives.

To sum up, the seaports of Pakistan are required to reinvigorate to achieve stability in economic growth. To place Pakistan as the leader in the maritime trade and logistics sector we need to overcome the gaps in our maritime law to survive in prevailing circumstances and harmonize with international standards so that foreign investors may trade through the Ports of Pakistan which provide a booster to the economy of Pakistan. 

References

• Ahmed, F. (2020). "Enhancing Contractual Clarity in Maritime Transactions: Lessons from International Practices." Pakistan Journal of Maritime Law, 12(4), 201-215.

• Blockchain in Maritime Consortium. (2023). Blockchain technology and its applications in maritime transactions. BIMC Publications.
• Hasan, A. (2022). "Capacity Building in Pakistan's Maritime Sector: Challenges and Opportunities." Pakistan Maritime Capacity Building Review, 8-22.
• Hussain, S. (2020). "Legal Challenges in the Maritime Sector of Pakistan: A Critical Analysis." Pakistan Maritime Journal, 15(2), 45-58.
• Khan, A. (2021). "Navigating Demurrage Disputes: Insights from Pakistani Courts." Pakistan Legal Review, 25(3), 112-127.
• Ministry of Law and Justice, Government of Pakistan. (2021). Maritime law reform agenda. Government Printing Press.
• Ministry of Ports and Shipping, Government of Pakistan. (2022). Maritime policy and regulatory review. Government Printing Press.
• Rainey, S. (2019). Maritime governance and policy-making. Routledge. https://doi.org/10.4324/9781315874319
• United Nations. (1980). United Nations Convention on Contracts for the International Sale of Goods (CISG). https://uncitral.un.org/en/texts/salegoods/conventions/sale_of_goods/cisg
• Zaidi, H. (2021). "Strategic Contractual Practices for Demurrage Management: Insights for Pakistani Stakeholders." Journal of Shipping and Logistics, 18(2), 55-68.