From an environmental crisis to an economic one?

A prolonged settlement over the MV X-Press Pearl dispute could prove costly for Sri Lanka’s shipping economy

five years after the MV X-Press Pearl caught fire and sank off Colombo, spilling plastic pellets and chemicals along Sri Lanka’s western coastline, the environmental case has largely been settled in the country’s favour. The economic one has not. As compensation proceedings drag on, unresolved and increasingly contested, the dispute has quietly shifted shape, from a question of damages owed for an environmental disaster to a question of whether Colombo can be trusted to run a global shipping hub. The longer that ambiguity persists, the more it exposes Sri Lanka’s standing as a premier transshipment center, sitting just miles from one of the world’s busiest trade routes.

The numbers explain what’s at stake. Nearly 100,000 ships cross the Indian Ocean each year, carrying about 30% of the world’s containerised cargo and 42% of its oil and petroleum products, connecting Europe and Africa to Southeast Asia and beyond. Colombo sits at the center of that traffic, but location alone won’t secure its future if a fair settlement isn’t reached soon.

Shipping and logistics contribute around 

$ 2 billion, 2.5% of Sri Lanka’s GDP, and support 40,000 to 50,000 jobs, rising to $ 7.5 billion once transport is included. The Port of Colombo handled 8.29 million TEUs in 2025, still well behind India’s roughly 25 million TEUs across all its ports combined, and the government’s 2026 target of 15 million TEUs now looks unlikely.

Between 75% and 80% of Colombo’s cargo is transshipment, passing through to other destinations, a role that leaves Sri Lanka deeply exposed to global supply chain disruptions, as the country already learned during its recent economic crisis. Sri Lanka is a signatory to the international maritime conventions that govern shipping safety and liability, but shipping experts often cite the X-Press Pearl case as proof of a wide gap between what the country has committed to internationally and what its domestic laws actually enforce.

Having weathered the pandemic and its aftermath, followed almost immediately by a macroeconomic crisis, Sri Lanka needs a faster path back to normal. The sooner cases like this are resolved, the sooner growth and stability can follow. Shipping and logistics run on networks, and to anchor one, Sri Lanka has to operate by the same rules and systems that make global trade function. That means matching its actions to the standards it has already agreed to uphold

A hub under strain

Sri Lanka’s ambition to become a logistics hub for the wider Indian Ocean region depends heavily on foreign investment, in port infrastructure capable of handling the largest container vessels, in logistics parks and smart warehousing, and in the digital systems global shipping firms bring with them.

That ambition took a hit recently when plans for what would have been South Asia’s largest logistics hub, and one of Colombo Port’s most high-profile investments, were cancelled. The decision had nothing to do with the X-Press Pearl case, but it’s a reminder that investor hesitation, like carrier hesitation, is a real risk, one that could cost Sri Lanka the investment, technology and jobs it badly needs.

The Sri Lanka Ports Authority is preparing a new tender process, shaped by policy changes tied to the IMF programme, though the setback still slows the country’s broader logistics ambitions. Not everything has stalled: the SLPA’s East Container Terminal has added capacity, and Adani Group’s Colombo West International Terminal is progressing.

In August, government officials met the World Bank to explore how instability in West Asia might work in Sri Lanka’s favour for logistics, a theme that also shaped May’s EU-Sri Lanka Business Roundtable on Sri Lanka’s role as a maritime and logistics gateway. None of that ambition survives contact with investor hesitation, which is exactly what prolonged legal uncertainty invites.

The cost of uncertainty

Reliable supply chains depend on insurance, the mechanism that lets carriers and cargo owners take on real financial risk. Nearly 9.8 billion tonnes of cargo cross the Indian Ocean each year, backed by that same insurance architecture. Good regulation can build the confidence a shipping hub needs to thrive, but incidents like the X-Press Pearl disaster, and how they’re handled afterward, can just as easily erode that confidence, pushing up risk premiums for shipping through Colombo and deepening the hesitation the country can least afford.

Having weathered the pandemic and its aftermath, followed almost immediately by a macroeconomic crisis, Sri Lanka needs a faster path back to normal. The sooner cases like this are resolved, the sooner growth and stability can follow. Shipping and logistics run on networks, and to anchor one, Sri Lanka has to operate by the same rules and systems that make global trade function. That means matching its actions to the standards it has already agreed to uphold.

While no one questions the fact that Sri Lanka has the right to ask for compensation, the compensation should be commensurate with the damage, while government taking into account the economic cost to uncertainty stemming from arbitrary decisions and from lack of meaningful engagement with the investors. For an international maritime centre, the manner and timeframe in which major disputes are resolved become part of the risk calculation made by ship owners, insurers, investors and cargo interests.

A transparent, timely and credible resolution would prove something more valuable than geography: that Colombo isn’t just well placed for global trade, but genuinely equipped to run it.

The writer is the immediate past president of the Sri Lanka Shippers’ Council (SLSC). He has also served on the board of the UK-based Global Shippers’ Forum (GSF) since 2015, and has chaired it since 2018, giving him a prominent voice in global shipper advocacy alongside his work locally.