/Challenges faced by Sri Lankan maritime industry in 2020

Challenges faced by Sri Lankan maritime industry in 2020

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It is important that the government initiates discussion with all stakeholders and work on these main areas, which is required to achieve Sri Lanka’s maritime aspirations.

by Ceylon Association of Shipping Agents (CASA)

The Port of Colombo is ranked the world’s number one container growth port among the top 30 container ports for the year of 2018, in container handling. It has also recorded a 13.5 percent growth for the year 2018, over the same period of the previous year, reaching 22nd from the position of 23rd amongst global container ports, according to Alphaliner Monthly. It is also a significant achievement as it is the first time in history that the Port of Colombo has topped a global maritime ranking. With this growth, the Port of Colombo has leapt ahead many other Asian, Middle Eastern and European ports.

However, retaining the leadership position is going to be a challenge for Sri Lanka, due to the rapid growth in regional ports. India is rapidly investing in its port sector and particularly a deep water terminal in Vizhinjam, which will affect the transshipment volumes from India. Therefore, the Ceylon Association of Shipping Agents (CASA), the voice of the shipping industry, thought of highlighting the challenges faced by the industry in the new year.

Expediting East Container Terminal

The only deep water terminal in Sri Lanka is Colombo International Container Terminals (CICT) with a depth of 18m and the existing facilities are reaching saturation for the sixth generation container mega carriers. CICT, which is a joint venture operated by China and Sri Lanka at the Colombo South Terminal in the Port of Colombo, said that it handled a total of 2.9 million TEUs (twenty-foot equivalent units) or 40 percent of volumes at the Colombo Port in 2019.

CICT said in a statement that the terminal has seen an 8.6 percent increase in throughput compared to 2018 and a 322 percent increase compared to 2014. Strong growth at CICT has helped the Port of Colombo increase its total throughput by 2.6 percent in 2019.

A requirement for a second deep water terminal is evident for Sri Lanka to be a maritime hub in Asia. It would be prudent for the Sri Lanka Ports Authority (SLPA) to plan not only to operate the present 440m of the East Container Terminal (ECT) by expediting the installation of cranes and other container handling equipment but at the same time commence the rest of the construction of the ECT.

With shipping lines operating larger ships (lengths exceeding 350m) on the main east-west trade lane, at present only two vessels, which are over 360m long, can be accommodated in the Port of Colombo at any given point of time. This should at least grow to four if we are to attract multiple east-west services to the Port of Colombo. If we are unable to attract these services, then we may run the risk of losing the competitive advantage of being a vibrant transshipment hub.

Improve ease of doing business and digitalization

Trade is the engine of economic growth for any country. Therefore, countries around the world strive to improve cross-border efficiencies and enable international trade to happen immaculately.

The Government of Sri Lanka (GoSL) identified the need to reform its trade policies and practices to support a business-friendly environment, promote private sector growth and use the strategic position of Sri Lanka to benefit from foreign direct investment (FDI), which will provide the much-needed support for better export performance. Digitalisation initiatives such as the National Single Window (NSW) and Port Community System would undoubtedly drive growth in the maritime sector.

An NSW is a facility that allows all parties involved in trade and transport to lodge standardised information and documents with a single-entry point to fulfil all import, export and transit-related regulatory requirements. The fruitful creation and implementation of the Trade Information Portal (TIP) is therefore a key attribute to the making and deployment of the NSW.

Although there have been initiatives in the recent past by individual organisations such as Sri Lanka Customs and the terminals with regard to automation and systems modernisation, there are significant shortcomings affecting the effectiveness of border management, including a lack of sufficient coordination between various government bodies. No progress was made on the NSW, which remains a concern among the industry.

The World Bank has come up with a number of performance indices used to benchmark performance of countries on key dimensions such as the Logistics Performance Index (LPI) and Ease of Doing Business to name a few. They measure, among others, the time taken for documentary and border compliance as well as cost to export and import. Sri Lanka has achieved an overall ranking of 99 on ease of doing business whereas Singapore has been successful in achieving an overall rank of two.

It is common to note that the Customs administrations become the focus when the subject of trade facilitation is discussed. Although the functions and activities of Customs administration is an essential component towards facilitation, a view from a supply chain perspective helps to understand the various dependencies among other players, procedures and processes as well as linkages between these parties such as private sector traders, transport providers, service intermediaries and other regulatory bodies in the public sector. This has resulted in many countries making efforts to exploit digitalisation in order to drive efficiencies through automation, paperless trade, electronic data interchange, cashless transactions, etc.

The Fourth Industrial Revolution, through digitalisation and the leveraging of innovation, technology, data and the Internet of things, is set to revolutionise the service industry. This will shift established modes of production and consumption generating welfare and productivity gains and offering new opportunities. Therefore, it is imperative for us to consider whether we are ready as a nation to face this revolution and the demands that come with it. 

However, in driving towards this, the following should be in place:

A single entity with the necessary legal mandate to take ownership and drive such an industry-wide digitalisation initiative. Some countries have been highly successful with a government agency driving the project directly under a minister whilst there are other cases where public-private partnerships have proved to be successful.

Ensuring active participation of all stakeholders to achieve a common objective with consistent monitoring at the highest level and continuous improvement.

A standard operating procedure to be put in place, which would ensure that expectations as well as obligations of stakeholders are clear in order to conform and comply.

Necessary support for capacity building focusing on research expertise, domain know-how, digitalisation, funding and establishing cooperation among the public and private sectors.

Other ancillary services

Apart from the port infrastructure, there are many other areas that need attention to develop this ecosystem. Without these ancillary services, a concept of a hub is just a dream. A successful hub port requires the full range of ancillary port and marine services at competitive prices in order to be attractive to mainline and feeder operators, casual callers and attracting vessels specifically for services even without cargo operations.

The government should promote maritime-related ancillary services by creating a climate that would encourage investors by offering incentives and non-bureaucratic regulatory infrastructure for these services to be offered at world-class standards and regionally competitive rates.

The ancillary services include the following:  bunkering, marine lubricants and freshwater supply, offshore supplies and ship chandelling, slop disposal facility, salvage and towage, ship repair and shipbuilding, ship layup, services to cruise ships and yachts and maritime security services.

The bunkering industry provides the shipping industry with the fuel oil that the vessels consume. The quality of the fuel oil provided will ensure the safe operation of vessels. Ship bunkering is a key support service that a maritime hub can provide for the global shipping industry. If a ship can carry less bunker, on a voyage it can accommodate more cargo, which means it can take in less bunker at turnaround ports and refuel whilst on voyage at a strategic location.

Sri Lanka is located at such strategic location in the Indian Ocean and can provide bunkering and other services to thousands of ships plying along the south coast connecting east-west global trade. This is where the Hambantota Port is situated and it can provide both inshore and offshore bunkering and ship services as a profitable business. For this purpose, the private sector should play a greater role and should be allowed to set up operations for distribution and market development.

The turnover and the revenue generated by this activity would contribute significantly to the Sri Lankan economy. 

For the bunkering industry to succeed, it is necessary that the industry has access to good supply vessels, storage facilities and a competitive product. At present, there is limited land-based storage capacity to store bunkers and supply from pipeline from JCT OIL bank. Enhancing this storage capacity is key in enabling bunker operators to buy larger volumes and leverage on lower prices to supply a competitive price in the region.

Currently, there are many restrictions to operate floating storages and other bureaucratic restrictions, which inhibit the growth of bunker volume from Sri Lankan ports. Another major requirement is to have refinery capacity, which can supply excess product for the bunkering industry. Sri Lanka urgently needs to expand its refinery output/capacity to fuel the bunker supply.

Salvage operations is also  an important aspect in the maritime industry, with high revenue potential, not only to the salvors but also to the ports, transporters, insurance surveyors and everyone involved in the chain. The government shall encourage the practitioners to handle vessels in distress in

Sri Lankan waters and ports.

Salvage services are also essential to ensure that maritime casualties in Sri Lankan waters do not cause damage to the environment, fauna and flora, as well as the coast. Search and rescue facilities have to be maintained by the government as well. The government should encourage the development and promotion of the business of salvage and towage and encourage Sri Lankan entrepreneurs to invest in this industry with necessary incentives. The government also shall ensure that minimum salvage and search and rescue facilities are maintained in and around the Sri Lankan waters.

The government should encourage the development and promotion of ship chandelling and offshore supplies to ships. The present facilities available in bonded stores are only for liquor and cigarettes. As a result, a large range of ship supplies normally requisitioned by vessels have to be purchased by chandlers in the open market at rates, which include import duties and other local levies. This makes supplies from Sri Lankan chandlers uncompetitive for ships calling at Sri Lankan ports. The existing bonding facilities need improvement and enhancement to accommodate all products.

Maritime policy

The need for a national maritime policy was highlighted in many forums as an urgent initiative to ensure long-term growth in the sector. In light of our geo-strategic position across international maritime trade routes, Sri Lanka is now in need of robust policies to garner the benefits than ever before. The adaptation of a national maritime policy would ensure sustainability of the country’s maritime and logistics’ landscape.

A national policy for maritime and logistics sectors was drafted by a committee comprising of industry experts covering all filed in the maritime industry. The document was presented to the former Ports and Shipping and Southern Development Minister Sagala Ratnayaka by former Ministry Secretary Dr. Parakrama Dissanayake, at the ministry, last year. It is advisable that this document is revisited and implemented as a lot of effort was put in to develop this well-thought-out road map for the maritime sector.

Conclusion

It is important that the government initiates discussion with all stakeholders and work on these main areas, which is required to achieve Sri Lanka’s maritime aspirations. More importantly, an implementation body with legal mandate needs to be put in place to ensure that policy is executed without any delay. The main point to stress is that a maritime hub consists of several elements, primarily capacity and physical infrastructure, quality ancillary services and ease of doing business, all which need to be addressed simultaneously to attract more vessels and more revenue and more investment to this country. 

Ceylon Association of Shipping Agents (CASA) is the voice of the shipping industry in Sri Lanka. Views expressed in this arte are CASA’s own.