Our maritime and logistics hub dream and liberalisation of the shipping and freight forwarding indus

A lot has already been expressed, for and against, in the press, on the proposal made via the country’s 2018 Budget speech to liberalise the shipping and freight forwarding sectors in full. After the budget speech, the Finance Minister himself wrote to the Sunday Times of 12 November (page 12) explaining the potential benefits that our economy would enjoy if the said sectors were liberalised.    

These deliberations prompted me to express my thoughts on this subject as an independent maritime professional. Let me explain the situation/matter in simple language for the benefit of all. 

In this context, before progressing any further, I believe, we should understand the real meaning of the ‘maritime and logistics hub’ (freight forwarding included) status we now aspire to earn.  

The Port of Colombo (Colombo) counts nearly four decades as a mainstream transhipment container hub for the region. Colombo has managed quite well as a shipping hub – 75% of the container throughput is transhipment – the throughput for 2017 would be around 6.1 million TEUs (estimated). 

Despite the ups and downs, today, Colombo is equipped with the state-of-the-art terminal facilities and provides a service second to none. Many global liner shipping companies patronise Colombo as a regional transhipment hub and it provides the critical mass for the carriers to justify their port call. 

Even though Colombo has been a successful transhipment/shipping hub for many years, it is still short of several important elements to get elevated to a level of a ‘maritime and logistics’ hub. These elements include; providing bunkers and other auxiliary services that ships require at competitive prices, ship financing, ship brokering, ship insurance, arbitration services, modern logistics infrastructure and seamless service quality assurance across the board. So, it is clear that the cargo volumes (or shipping services) alone cannot make Sri Lanka a fully-fledged maritime hub. On top of cargo handling, we must be in possession of all of the above mentioned services at competitive prices!  

A well-thought out national policy is a must to provide the right business environment. Then we require both local entrepreneurs and foreign investors (maybe on PPP) to get to the next level. These are aspects we should work out now, and have on the ground, before we can aspire to earn the ‘hub’ status.

In his write-up, the Finance Minister stated that an ‘anchor investment’ from a shipping company such as Maersk Line would give a boost to the industry. He has further said that this would set a good example for other big boys to follow suit and create the critical mass for Sri Lanka to become a maritime hub. 

In this context, it is important examining these two sectors further; 

Shipping business

Strictly speaking, be it agency or principal’s own office, this business just requires a building (owned or leased), 40-50 people, a few computers and vehicles (not a multi-million dollar investment). Relatively, this is a small investment, just for the company’s own use (like any other investment). Also, some of the articles I read indicated that the presence of principals is required in Colombo to make Sri Lanka a maritime hub. I beg to disagree with this argument. We already have some presence of owners of the shipping companies here and the situation would not change with the number of foreigners we see in their offices!

Today, even small businesses are highly technology-driven on all fronts. In the developed world, many senior executives work from home, there is no need to be in office most of the time. Moreover, we now talk about autonomous ships having witnessed driverless cars! The world is more complex, but much smaller today, and I would argue that a large physical presence of principals in Sri Lanka is not important. 

Moreover, I am curious to know, on what area/s the global shipping companies would make massive investments in Sri Lanka if they are given 100% ownership of the business (the basic requirement was explained before). None of the pro-liberalisation articles (I read) explained this! Depending on our national investment policy, if the so called ‘anchor investment’ is to support our economy in general, I believe, Sri Lanka could consider a higher percentage in shipping business (in lieu of support) on a case-by-case basis. 

Freight forwarding (and logistics) business

This could differ from the local shipping business being capital intensive at times. One of our current drawbacks is not having the right infrastructure (modern warehousing/distriparks, etc.) to make the business more efficient and effective or to make them venture into new businesses. Sri Lanka would need large investments from global players to exploit its logistics and freight forwarding opportunities. 

However, the country’s ‘hub act’ provides some provision for foreign companies to hold a larger percentage of shares (more than 40%) in BoI approved projects. This can be further relaxed even up to 100%, based on promised investment/business on a case-by-case basis. It would be fantastic if we could attract companies such as Amazon!   

As per Ceylon Association of Shipping Agents (CASA) and Sri Lanka Logistics and Freight Forwarders Association (SLFFA), there are 750 home-grown companies that employ about 12,000 people in these two sectors. These companies have invested their heart and soul and other resources to build up their businesses. They have also contributed to the development of country’s human capital and national economy. Although the liberalisation decision would not affect all of them, people (both employees and employers) will have concerns about their future. Also, most of these companies belong to the island’s much important SME fraternity! 

Some articles written in this regard carried comparisons with other countries in the region. We should not get bogged down with what others have done. Sri Lanka should only adopt what is appropriate and beneficial to us Sri Lankans. 

If one considered the case of Singapore, it is true that shipping/logistics sectors are fully liberalised there, but more than 90% of the port industry is controlled by PSA (Singapore Government), so their national economic strategy, in this sector, is revolving around the port. So, these major liberalisation decisions are made with a holistic view, and very importantly, we should not consider them in piecemeal! 

In conclusion, let me briefly analyse the maritime and logistics business for the benefit of the readers. By and large, there are four main business components here. They are; (1) Shipping services (2) Logistics/freight forwarding services (3) Port services (4) Other auxiliary services and supplies; e.g. bunkers. At present, Sri Lankans control 60% of shipping and logistics/freight forwarding business in joint ventures. 

As a nation, we are currently not competitive in providing auxiliary services. In our port business, as of now, the majority ownership (the control), is slowly moving to large foreign investors who have been granted tax holidays. So, in real fact, we are left with only shipping and freight forwarding/logistics sectors for our small and medium scale entrepreneurs. 

If we grant a blanket liberalisation on these two sectors as well, it is highly unlikely that we will retain any wealth created from these businesses within Sri Lanka, for the benefit of our masses!   

The writer is a Maritime Consultant and a Borderless Thinker. He is exposed to a number of areas in the maritime spectrum at a global level and currently engaged in preparation of the National Maritime and Logistics Policy for Sri Lanka.)