Towards maritime excellence in Sri Lanka

Monday, 3 March 2014 01:42 -     - {{hitsCtrl.values.hits}}

BY Cheranka Mendis A maritime and logistic hub is a central location with a strategic importance for international trade and transport, equipped with state-of-the-art maritime infrastructure, super structure and technologies to facilitate ports, shipping, value added logistics, dock-yards, defence, security and fisheries of a region. A hub such as this is an amalgamation of sea ports well connected with main shipping routes, air connectivity with other logistic centres in the world, developed inland road and rail connectivity, easy access to energy sources and supportive infrastructure developments. Sri Lanka, with an aim of becoming the maritime hub of the region, is strategically located at the centre of East-West shipping route with no deviation from the main shipping route. The prospects for Sri Lanka in becoming a maritime hub came under spotlight at the Forum on Five Hubs organised by the Daily FT in partnership with the University of Colombo MBA Alumni Association last week. SLPA Chairman Dr. Priyath Bandu Wickrama speaking at the forum noted that the Government has taken steps to liberalise and strengthen rules and regulations as supportive measures for the growth of business in the country among other measures to create a conducive environment towards investment promotion and hub creation.  Goals for ports Accordingly, short term and long term planning in sea port development were introduced to become a significant naval centre for ships navigating on east-west shipping route. The three-year short term port development plan of 2008-2010 was successfully completed, after which a five-year medium term plan was made for 2010-2014. “Now, the seven-year port development plan to be completed by 2020 is in progress,” Wickrama said. “It is the intention of the Government to launch a 25-year long term plan for development, improvement and promotion of the port sector.” While the aspiration is to develop Sri Lanka as a global logistic hub and delivery of world class services to port users and stakeholders, achievement of Vision 2020 will ensure the country as a maritime hub, handling 200 million tonnage of cargo handling, enjoying a US$ one billion in revenue. “We are also expecting US$ 10 billion investment within ports by 2020.” He noted that SLPA has developed operational and marketing strategies, financial objectives and safety and security plans to achieve the growth targets. Current facilities available The Chairman expressed that the country has seven main berths, four feeder berths, 35 ship-to-shore cranes and 110 transfer cranes to serve ships with faster turnaround time within the port of Colombo. Under the Colombo Port Expansion Project (CPEP) the country can now enjoy a 6.8 km break water, a mega berth at Colombo International Container Terminal (CICT), six supper post panamax gantry cranes and 10 transfer cranes. He remarked that the Colombo Port is known as one the best ports in the world while achieving the hub port status in the South Asian region. “Port of Colombo handled 4.263 million TUs in 2011, with 3% increase when compared with the volumes of 4.137 million TUs in 2010. In 2013, volumes increased by 2.8% when compared with 2012,”Wickrama said. “The latest achievement is 12.3% increase to-date by handling 682,756 TUs when compared to the same period last year.”  With the completion of three berths at CICT and operation of ECT considerable volume of containers will ship to Colombo by 2015 from other regional hub ports, expanding the numbers further by end next year. At the Magampura Mahinda Rajapaksa Port in Hambantota, facilities for handling conventional cargo, oil and gas, and vehicles are available. “In addition to conventional cargo berths, two oil and gas handling berths are operational,” Wickrama said, “SLPA will also install two multi-purpose cranes by July this year, enabling investors to carry their containerise cargo to port.” What to expect Under CPEP, two mega berths are being developed at CICT to accommodate any mega containers. East Container Terminal (ECT) and the first berth will be operational in March this year while the West Container Terminal (WCT) which is the third terminal will be developed at the appropriate time to handle mega container ships. “We can also expect to see 24 across gantry cranes, 12 per each terminal.” At the Hambantota Port, container terminals, general cargo berths and two dedicated RoRo terminals will be developed to make international industrial and container handling port. “SLPA is taking the Ports of Colombo, Hambantota, Galle, Trincomalee and other ports to world standards with deep-draft berths, modern container handling equipment, latest ICT applications and safety and security, etc, to meet the needs of mega careers, global demand for increasing cargo handling efficiency, etc.” With technological advances mega carriers will be built to transport cargo and as a result number of vessels calling at ports will decrease, he stated. “Sea ports in Sri Lanka will play a central role in economic development.” Hambantota Port will also be developed as one of the hub ports in the region due to the proximity to the Indian sub continent.  Colombo Port City The new Colombo Port City to be located within the sheltered area created with the construction of the south port will be developed for household business, financial and commercial establishments, residential and recreational facilities and other social infrastructures. The new port city will have quick links to the administrative capital, trade zones, airports and logistics centres. The development of new port cities has become essential to create value requested by the investor who are concerned about technology, management, R&D, managing risks, corporate governance, supply chain, location of key operations, head quarter operations, front end facilities with apartments, hotels, business centres, entertainment facilities, etc., Wickrama noted.  Lotus Island Hambantota In addition, another port city will be developed in Hambantota with facilities to house front-end services, hotels, recreational facilities to promote tourism industry, among other features. Construction work on this project has already begun. “We are confident that the contribution to the national economy by the SLPA and many other institutions will increase in the future in the development of tourism, recreation and various other industries to generate much needed revenue to the country. I am confident that you will appreciate the development of port cities as a significant component of the maritime hub of Sri Lanka.” Free port for investment SLPA has identified the establishment of free ports as an excellent means for attracting additional traffic and encouraging development of intermediary trade to increase opportunities for transactions with neighbouring countries. Ports of Colombo and Hambantota have been declared as free ports under the Finance Act under which Customs duties and other restrictive regulations of commerce are eliminated substantially for products originated in this territory. Entrepot trade within the specified area for domestic value addition is also possible. “If enterprises engage in manufacturing, assembling products with approval, five activities are permitted within free ports. Under fiscal and regulatory benefits operating within the new free ports, any enterprise established or incorporated in Sri Lanka for the purpose of undertaking any of the five business activities, with at least 65% of the total investment from foreign sources will be exempted from application of previsions in the Custom Ordinance Exchange Control Act and Import And Export Control Act. “Necessary amendments have been made to existing legislation to promote bonded cargo handling facilities, entrepot trade facilities, etc., within the new free ports in order to create a conducive environment for foreign investors as well as local and foreign investment partnerships,” Wickrama said. Need for skilled labour “For us it is important to have a well educated skilled workforce,” he said. Finding the right people can happen by launching graduate and postgraduate courses to cater to industry requirements and mid level management courses in technical collages.skilled workforce in the maritime sector.  Pix by Upul Abayasekara and Lasantha Kumara

 Liberalise shipping industry to welcome investors

What we should do to become a maritime hub While there is no doubt about the country’s prospects of becoming a maritime hub given its strategic location and the Government plan and support, what the country must do initially is realise the full potential it would receive by creating this ‘hub status’. Navy Commander Vice Admiral Jayanath Colombage noted that Sri Lanka being at the centre of the East-West trade route, through which 50% of the global containerised traffic passes, the country experiences nearly 300 ships passing through Hambantota and 400 ships through Colombo Port monthly. Having conducted a survey with the Ministry of Defence, there are some 15 points that needs to be focused on to achieve the intended status, he said. These include geography, which the country is blessed with, maritime vision of leader and people, size of seafaring operation, off-shore commercial activities, naval and coast guard services and a good ship building industry among others. However, “we don’t even have 7,000 seafarers at sea, which is quite small,” Admiral Colombage said. “In terms of naval and coast-guard services, the Sri Lanka Navy is ready to do its job in achieving maritime hub status.” Having well developed main and minor ports, productive trade (not only thriving on transhipment cargo), scientific research and data, a leisure industry at sea that looks beyond the beach, user-friendly customs and monetary policy are also key factors in achieving the set goal. “We also need a conducive environment for FDI, port registration and regulation, and peace, democracy, political and social stability.” Also serving as Chairman of Ceylon Shipping Cooperation, Colombage noted that orders have been placed for two ships while a few more will be chartered to support the industry. What is needed is to educate seafarers and to explore sea-bed potential to become key players in the regional business. Improvements needed for hub status “We have only 7,500 active seafarers and only 250 ship captains. We only have a very few ship owning companies and only four to five ships in Sri Lanka,” CINEC President and Managing Director Capt. Ajith Peiris said. Even though ship owning industry is a pretty successful industry one can embark on, many do not due to the weak ship financing in the country. “We have very few financial institutions which will support and that too, not to a great extent. When we try to have ships they ask for collateral, a building or land which is not the normal way of ship financing,” Peiris added. The country can also look at ship management business and crew management business. It easier to achieve the latter as many local crew are being employed by ship owning countries. To improve this, what is needed are training berths for practicals and enhance quality of training institutions in the country. Ship building and repairs must also be enhanced as currently; there is a monopoly with only Colombo Dockyard providing the service. “Maritime surveys and insurance, bunkering, ship channelling and maritime tourism need also to be improved,” he said. “We also need marinas to attract yachts, ship finances and cruise line shipping.” Importantly, what has to be improved is legislation, acts and regulations to be business friendly to attract investors while safeguarding Sri Lankan businessmen. “Authorities need to be trained to understand the necessity for this business environment, with timely action and approvals as well.” Call on logistics companies – Yusuf Expolanka Holdings Plc Group Managing Director Hanif Yusuf voicing his thoughts stressed the importance of the logistics sector for the maritime hub to be a real hub. The entire outsourcing of logistic business is some US$ 270 billion and is controlled by over 100 companies, of which 25 or less control one-third of the entire global operation. “Out of these, a considerable number of companies are in Singapore. Singapore invites these logistics companies,” Yusuf said. “Hub will only work with external developers as part of it.” Commenting further, Yusuf expressed: “I might disagree a bit about safeguarding Sri Lankan businessmen, but global companies work with global companies. This is how we must invite them to come in.” Despite branding the five hub concept, Sri Lanka in the recent past had restrictions on foreign ship owners coming in – how do we create a hub with such restrictions? He noted that President made a special gazette announcement to adjust this. “We must look at attracting multinationals to come here and set up businesses.” There is also a lack of private sector participation. “If the Government is talking of investment, perhaps policies need to be a bit more streamlined. There were restrictions on foreign shipping companies coming in. We want better ship companies to come in, we do want to revitalise shipping to be one step behind Singapore and not just one step forward of India.” Shipping unable to recover costs in SL As shipping agents at the forefront in marketing Sri Lanka for several decades pursuing shipping lines to use our facilities and move cargo and containers through the port, Ceylon Ships’ Agents Association Chairman Ralph Anandappa’s observation was that currently shipping lines are unable to recover their costs in Sri Lanka unlike they can do in other competing hubs. “As we all know, port capacity is reaching almost 22 million TEUs per annum by now, but we are achieving 4.3 million. We need shipping lines to move business in to Sri Lanka and, we need to also create a conducive environment and benchmark on international standards,” Anandappa said. “Right now shipping lines are incapable in recovering their costs in the country.” Legislation also restricts shipping lines in various ways, such as intruding on how shipping lines conduct business, etc. These are added implications and will have effects, he warned. On the bright side, there are discussions going on with Government and relevant stakeholders to try for a win-win situation. “It is also important to have dialogue between government and private sector as well as all stakeholders. We believe we need an inclusive approach to harness all synergies to make the hub concept a success.” Need for a rational and reasonable investment base liberalisation Agreeing with Yusuf, Shippers’ Academy Colombo CEO Rohan Masakorala said that we will not become a maritime hub if we have protectionism within the system. “If foreigners have to put in million dollars and take 40% off profits, they are not going to come here.” However, the country needs global capital, global expertise, global knowledge and global headquarters. “If you put restrictions with protectionism they won’t come in.” In a study done in 2010 of container ships diverting to Colombo, average cost of diverting to Colombo was at US$8.71 per TEU. Compared with Chennai, Chittagong, Cochin, Karachchi, Dubai etc and the lowest other party was US$ 14.88. The calculation was done in association with Maersk line for a 10,000 TEU vessel US$6.40. “This was an advantage for ship operators and that is why they came to Colombo as a transhipment point; not because Sri Lanka has a large number of containers of exports,” he explained. “What we as a country should do is bring in these logistics companies, promote trading, exports, and improve our base load – that is where we can support the shipping industry.” Sri Lanka also has a serious labour law issue in the country as the laws are outdated now. Also, there needs to be an integration of logistics, aviation, shipping and warehousing – I hope this will be done soon so that there will be no duplication. “Other than that I am very confident of the hub,” Masakorala said. “We are very capable people but we must work together. We must look at our exporters, trading environment, service providers and liberalisation must come. I would like to achieve liberalised logistics first and then the message will go to the world. I do believe shipping must be liberalised, maybe with some type of investment gateways.”