How Long Can Colombo Port Remain a Regional Transshipment Hub?
By Sulochana Ramiah Mohan
Sri Lanka should push harder than ever to transform itself from a decades old regional transshipment hub to a global hub for cargo and logistics at least after being welcomed as the Vice Chair of Indian Ocean Rim Association (IORA) for 2021-2023 last Thursday (17).
It’s high time that Sri Lanka moves away from internal and regional politics, blindly following trade restrictions when the maritime trade is showing a major upsurge by opening the country for logistics FDIs with least procedures for international investments.
The Commercial Hub Act states the importance of and formulation of an investor friendly flexible environment for Sri Lanka to become one of the best port hub operators in the region.
This idea has seemingly hit rock-bottom especially during the coronavirus (COVID-19) pandemic.
But as far as Customs operations are concerned negligence and a lack of support has been experienced by clearing agents during the pandemic. One such hassle the clearing agents are saying should be done away with is the practice of obtaining approvals from the Grama Sevaka, Provincial Secretary, area Police, Inland Revenue Department to obtain permits in order to enter the port during the period of lockdown during the pandemic.
It should be understood that Sri Lanka should not only be part of the South Asian region’s best maritime hub, but because it is located on the East West Maritime Corridor it can achieve greater strength in promoting itself as a link to global capitals of the maritime industry.
The IORA region itself is huge and has been linked by commerce for centuries and is now a fast growing region and considered to be the centre of global trade and investment flows with half of the world’s container ships and two-thirds of the world’s oil shipments passing through the Indian Ocean.
There are key transit points such as Bab el-Mandeb and the Straits of Hormuz and Malacca too and the emerging economies such as India, Indonesia, Kenya and South Africa will ensure that the importance of the Indian Ocean Rim to the global trading environment will only increase in years to come, but where does Sri Lanka stand in all of this?
Port clearance is facing the most delays with no solutions being put forward by the authorities.
Foreign Minister Dinesh Gunawardena, speaking on Sri Lanka being made the IORA Vice Chair, said that since 2018, Sri Lanka as the Coordinator of the IORA Working Group on Maritime Safety and Security, has dedicated its efforts to ensuring that there is greater connectivity through knowledge and experience. Sri Lanka is expected to host the Blue Economy Conference in the second half of 2021 and also undertake a study on identifying bottlenecks to maritime trade in the IORA region. Sri Lanka also indicated its interest to join the IORA Cluster Group on Fisheries Management (CGFM). Sri Lanka is also member of the IORA cluster groups; Disaster Risk Management (DRM), Blue Economy (BE) and Tourism and Cultural Exchanges (TCE).
At the recently concluded event ‘Promoting Sri Lanka’s Interests in the Maritime Domain: Maritime and Logistic Hub’ organised by the Lakshman Kadirgamar Institute, Chief Executive Officer South Asia Gateway Terminals of the Port of Colombo touched on the potential for Sri Lanka to become a major Port hub. He said that it is estimated 650 plus ships pass by Sri Lanka along the Maritime Sea Route (MSR) everyday, which means around 200,000 per annum, of which 4,708 ships had called at the all ports in Sri Lanka in 2019 an average of 12-15 ships per day. He also pointed out of those numbers, 90% of the ships called at the Port of Colombo and 85% of which were container ships.
He also said the ports in Colombo, Hambantota and Galle have little or no deviation cost for ships traversing the MSR.
“Sri Lanka has the excellent connectivity with India by sea and air and is situated midway between two major hubs and astride the East West MSR and North South on the Bay of Bengal.”
But pointing out that Sri Lanka is presently facing the second wave of the COVID-19 pandemic and terminals had positive cases that saw volumes drop drastically. He also pointed out that the East Container Terminal (ECT), which is a deep terminal, is not fully operational at a time when it is critically needed due to a lack of capacity to take on additional volumes at the Port.
“The current situation has also led to pressure to reduce overall port call costs,” he added. Also he pointed out that due to the current scenario, freight rates have increased and space availability will challenge export competiveness. Carrier consolidation could also falter and turn out less competitive operations for shippers.
But he said Sri Lanka can benefit from opportunities as transshipment hubs will grow and optimum utilisation of ultra-large ships will be a key driver for shipping lines.
He added that network redesign prompting shifts to traditional hubs and Sri Lanka must hurry through Port expansion plans such as the West Container Terminal 1 and 2 and the North Port development.
He also mentioned that in diversifying product offerings the Colombo Port should become a regional cargo hub.
He also urged that a great digitisation of the current paper laden work practices should be boosted where paperless and instant processing, electronic payments, Customs and Port operations must be considered. He also said they would reignite SAARC or the Indo-Lanka single window process for trade facilitation.
Concrete plans needed
Global Women in Logistics and Transport WiLAT Chairperson Gayani de Alwis, who was the Moderator at the event, in her remarks mentioned that although this pandemic is a crisis situation, this crisis has created many opportunities for Sri Lanka in the maritime and logistics space. One common factor in SL’s past 70+ years of existence with successive governments, irrespective of their party lines is that they have identified SL’s strategic location and had the aspiration to make SL a maritime and logistics hub.
“We need to make this aspiration a reality with concrete plans and focused actions. In light of the global trade shifts that are happening with relocation of manufacturing hubs with near shoring to improve resilience in supply chains, Sri Lanka needs to play our cards right to tap into these evolving global supply chains in order for us to transform ourselves to make use of this golden opportunity to realise our maritime hub status aspiration, she added.
Decades as a transshipment hub
CEO of the Shippers’ Academy Rohan Masakorala said while the world economy is around USD 90 trillion it would double in another 30 years and the Indo Pacific region has everything, be it population, surface area, world’s GDP and container trade and its leading the way in all of this and Sri Lanka is uniquely positioned to benefit from this.
Port services are becoming busier and the requirement of port and infrastructure development, better trade in Asia and out of Asia is going to expand greatly and Sri Lanka has the potential of being the hub of the South Asian region in this regard, he said.
He added that there are major hubs situated around Sri Lanka but they have now gone global, whereas Sri Lanka is still a regional hub.
Sri Lanka has been a transshipment hub for over three decades and is not moving beyond that, he added.
Masakorala also pointed out that Sri Lanka should transform itself into a global Maritime logistics hub as that is where the opportunities lie and Sri Lanka can become one among the best to promote logistics for the international community.
He also said there should be competitiveness in terms of serving the Indian Subcontinent.
He pointed out that Sri Lanka has a distinct advantage of storage and distribution facilities but that facet has not been marketed properly.
“We have disadvantages due to domestic constraints that we need to overcome however”, he added.
Further he noted that despite having deep ports such as the Colombo Port and the Hambantota Port there needs to be more investments coming into these ports.
“Sri Lanka is nowhere in the listing of Global Maritime capitals, not even in the top 50 and has not moved beyond being considered a transshipment hub only. Singapore leads as maritime capital while other top ports are Hamburg, Oslo, Shanghai and the UK.”
He said what Sri Lanka lacks is a proper structure to attract global capital investments.
These restrictions and lack of ease in doing business for the international sector has been seen as a negative indicator that has lead others to overtake Sri Lanka, he pointed out.
To capitalise on what it has, he said Sri Lanka should reach out to European countries to provide it with maritime training, capacity building and skills development. Also, there should be awareness and promotional support as we have not marketed the Ports well despite some promotional work being carried out at Sri Lankan missions overseas.
Former Shipping Corporation Chairman Shashi Dhanatunge speaking to this newspaper said, “Let’s understand clearly that the South Asian region is missing out due its internal issues. The Brits played a master stroke before leaving this region and we are still biting into it, whilst the rest of the world is moving on demonstrating maturity and wisdom.
“Germany is part of the EU although it has a origin of WW2. Italy, Portugal, France and Netherlands are now small countries although they were conquering the world at one time. Today they are all part of NATO and the EU working in partnership. But what about South Asia?”
He opined that COVID-19 is the period for SAARC countries to regroup and plan the strategy to be the next dragon. “If we lose this opportunity by succumbing to the traps set by external forces it will be a repeat of our recent post-independence history.”
He added that Sri Lanka as an independent country should not allow it to be used as a soft venue by other parties to achieve their own goals. If they have issues let them sort those out elsewhere.
“We should be acting smart, intelligent and sharp enough from the lessons taught to us from our own recent history, as well as what we have seen in the Middle East, Lebanon, Afghanistan and in some African states to avoid these kind of situations where there will not be any winners other than never ending misery. Instead, we must invite all of them to come take the advantage of our strategic position to access a regional market (40% of world’s population), one of the least developed regions (so it need not have any planned disruptions to introduce reconstruction funding) with so much potential for investments in infrastructure improvements, process untapped natural resources and a large young population for mobilisation, he added.
Several major shortfalls in the Entrepôt business at the Colombo Port
Vice President of the Association of Clearing and Forwarding Agents (Customs House Agent) Nalin Dharmapriya speaking to Ceylon Today noted that the main barriers in the Entrepôt business activity; that is to import goods from one country in order to re-export it to a third party in any country as imported or after simple processing (viz. re-packing, re-labelling etc.) and with or without value addition to cargo. As there is no ownership of the cargo, there is unwanted Customs interference and long documentation and operation process in this area.
He said that the Sri Lanka Ports Authority has no infrastructure to cater to this area and the Customs is taking the upper hand in taking decisions.
General Secretary, Association of Clearing and Forwarding Agents Uvaiz Samsudeen said that they sent a letter to Minister of Ports and Shipping Rohitha Abeygunawardena on 2 December urging to grant relief for Customs House Agents who are over 100,000 in number, directly or indirectly supporting to generate revenue for the country.
They did not ask for financial compensation but the outlandish treatment to them having not focused on the business and their dire situation they face amidst the coronavirus epidemic.
They pointed out at present the Customs House Agents and its employees are facing extreme difficulties in the daily operations and specifically meeting costs such as salaries mainly due to: Lockdown and Curfew situations which prevents and delays in obtaining approvals from the Grama Sevaka, Provincial Secretary, area Police, Inland Revenue Dept etc.
Productivity of the Stakeholders in the logistics industry is observed to have dropped by over 20% - 40% from the normal speed and the number of shipments that can be carried out too has reduced by over 20% - 40%.
Also, the number of import shipments has reduced due to the Government imposing a ban on many items, temporarily suspending over 100 items, including exports have reduced drastically.
They noted that, as a trade, CHA has never requested for any relief from the Government to-date, even during the toughest times of tsunami or beginning of COVID-19 in March.
Furthermore, we have never demanded from the Government for salaries etc., but have always supported the Government and the Port to clear essential and general goods without any interruptions throughout.
But they said, they are faced with a situation and require the Minister’s assistance during this tough time to survive with shortage of business, keeping staff without terminating their services etc.
We requested relief for continuation of economic activities such as, to renew all Regular Permit User (RPU) permits without any charges until normalcy returns; To renew all ‘A’ and ‘B’ port passes without any charges until normalcy returns; To renew vehicle permits without any charges until normalcy returns and to renew all CHA passes with Customs without any charges until normalcy returns, he said.