Budget proposal destroys local shipping and freight forwarding industry: CASA and SLFFA

Following is the full statement issued jointly by the Ceylon Association of Shipping Agents and Sri Lanka Logistics and Freight Forwarders Association:

CASA and SLFFA members, who are up in arms over the Government’s Budget proposal to lift the remaining restriction of 60% on foreign ownership in shipping and freight forwarding agencies, met Minister of Ports and Shipping Mahinda Samarasinghe on Saturday

The Ceylon Association of Shipping Agents (CASA) and Sri Lanka Logistics and Freight Forwarders Association (SLFFA), the voices of the shipping and logistics industries, strongly object to the Government’s Budget proposal to lift the remaining restriction of 60% on foreign ownership in shipping and freight forwarding agencies. 

The proposal will not bring any significant benefit to the industries and the economy and in fact will have an adverse impact to the national interest of the country.

No benefit

The removal of restrictions on foreign ownership will not bring in any additional investments or benefits to the country as envisaged. There will be no new investments by shipping lines and freight forwarders as a result of this policy change. 

Local companies have already invested in the required infrastructure to support the shipping lines and logistics activities such as in container depots, freight stations, logistics parks, transportation, etc. Such a policy change would enable shipping lines and freight forwarders to repatriate 100% of profits instead of reinvestment locally. They will convert the agencies to cost centres, reducing the employment of Sri Lankans and depriving the Government of substantial tax revenue.

Major shipping lines/freight networks

All major shipping lines and freight networks are currently represented in Sri Lanka and the lifting of restrictions will not bring any new shipping lines or freight networks into the country. With the expansion of capacity (e.g. CICT) in the Port of Colombo, shipping lines brought in new services with larger vessels and more volumes in a short period of time. 

With continuing expansion of capacity, shipping lines will bring in further new services/volumes predominantly due to Sri Lanka’s strategic location, the availability of deep water terminal facilities coupled with competitive port and terminal tariffs and service excellence comparable to competing hubs.

Wrong assumption

The contention that the shipping lines and logistics operators will base their operations in Sri Lanka as a result of this legislative change is incorrect due to the fact that currently there is no restriction on shipping lines or logistics operators setting up their 100%-owned headquarters or regional offices in Sri Lanka. The shipping industry in Sri Lanka, is, in fact, already liberalised where any foreign ship owner can freely operate their vessels in Sri Lanka.

The existing restriction applies to shipping agency/freight forwarding functions only and not to investments in other facets of the shipping lines/logistics activities.

The restriction in foreign ownership of shipping agencies/freight forwarding has not inhibited shipping lines’ interests in investing in port terminal capacity in Sri Lanka as displayed in the expression of interest for ECT where all major shipping lines and terminal operators submitted bids. An example would be the case of SAGT where there have been investments from major shipping lines.

Damage to local industry

There are currently in excess of 750 local shipping and freight forwarding and clearing agents employing over 12,000 direct staff most of whose jobs would be at risk as would the enterprises themselves. Further, the management positions will be filled by expatriate staff depriving Sri Lankan professionals. The indirectly-linked staff would be as much as 100,000, whose employment also would be at stake.

Shipping agents have also diversified into seafarer training and education and over the years have produced a pool of some 35,000 employed and employable personnel for global carriers and contribute in excess of $ 250 million per annum. Shipping agency and freight forwarding business contribute an estimated $ 400 million per annum to the economy.

No knowledge/technology transfer

There will be absolutely no knowledge transfer or technology transfer as a result of this change in ownership as the latest state of the art systems of principals are currently deployed and these systems are integrated with locally developed interfaces customised to support local operations efficiently and to the satisfaction of principals/freight networks by local staff.

Adverse implications

We are concerned that with this policy change the foreign owners will get controlling interest of agency/freight forwarding companies and not only will these companies be restricted in their growth but they would be limited in their capacity to invest in related or unrelated business as hitherto done by local entrepreneurial shipping agencies/freight forwarding companies over the past several decades. 

Sri Lankan-owned shipping agencies have always endeavoured to assist exporters in securing space in tight situations which will not be the case when control of shipping agencies shift to foreign ownership.

A majority local ownership in shipping agencies/freight forwarding companies have led to local entrepreneurs promoting the principals/freight networks to maximise their business through Sri Lanka as opposed to other regional hubs benefiting the Port of Colombo as well as the country. This position will be entirely jeopardised with this policy change.

Freight forwarders and shipping agencies physically take custody of goods worth billions of dollars per annum. When ownership and directors are all foreign, then it would be so much easier for them to simply vanish with goods. This has happened and is happening in markets like Singapore, Hong Kong and India. The difference when there is Sri Lankan ownership/directors is obvious as even if they do the same thing there are other ways to ensure they and their companies remain accountable.

Ease of doing business and development of port infrastructure is key

If the intention of this policy change is based on the premise of developing Colombo to be a logistics hub, we, as the industry, believe that there are more urgent and important initiatives that should be addressed such as the development of port infrastructure and measures to improve ease of doing business, thus removing all bottlenecks/bureaucracy throughout the supply chain which will reduce unnecessary costs and bring significant relief to the consumer/trade.

The Government needs to realise that for the maritime and logistics industry to grow, it is the local industry leaders that would promote the utilisation of all ports in Sri Lanka. The beneficiaries of the Budget proposal would focus only on the container segment and would not be interested in developing or promoting the other segments of the shipping and logistics industry.

It is important that any policy change should be discussed with stakeholders and the national interest should be safeguarded to promote local entrepreneurship consistent with the declared Government policy. 

This proposal comes as a great shock to the industry stakeholders concerned. It appears policymakers are misled to believe that this change will lead to Sri Lanka becoming a leading maritime and logistics hub.