Opportunities and challenges for Colombo Port from Middle East crisis

Economic fallout to the Sri Lankan economy could be quite serious if the prevailing volatility in the Middle East drags on. The external sector of the economy is projected to come under grave pressure in the event the conflict stretches for months, affecting the island’s exports (particularly tea), tourism industry, and remittances apart from impeding the recovery of the economy. Nevertheless, amidst such adverse outcomes, Colombo Port could see a huge surge in its activity levels as the nation’s premier port is considered as a convenient transhipment hub in the Indian Ocean.

International carriers are likely to divert vessels away from the Gulf due to the heightened security risk in the Middle East region. Already, maritime analysts have predicted that Asian transhipment hubs such as Singapore and Malaysia’s Tanjung Pelepas and Port Klang would experience increased traffic as a result of Iran’s aggressive response to attacks from Israel and the US.

Colombo Port is a premier global transhipment hub located directly on major East-West shipping routes. Its strategic position offers rapid access to South Asian markets, the Middle East, and Africa, making it a critical connector for international trade. Moreover, the port possesses deep container terminal depths that can accommodate the largest modern container vessels. 

It might be recalled that even in late 2023, with many shipping lines rerouting vessels to avoid Houthi attacks off the Yemeni coast leading to the Red Sea and Suez Canal, Colombo experienced a significant surge in container traffic and daily volumes increased by as much as 80% together with a substantial increase in bunkering sales. Last year, the Port handled 8.29 TEUs, with transhipments accounting for 81% of the volume. During January this year, total container volume of Colombo Port increased by 14.7% year-on-year to 754,730 TEUs. Transhipment volume, its core activity, grew by an impressive 14.9% during the period, reaching 604,173 TEUs.

The prevailing instability in the Middle East enhances Colombo’s appeal as a gateway for cargo consolidation, relay operations, and feeder connectivity to the Indian subcontinent. When the container volumes grew considerably due to Houthi attacks off the Yemeni coast two years ago, the Port was overwhelmed with extensive congestion owing to capacity constraints. However, the port now has enhanced capacity. The Colombo West International Terminal – which is developed by a consortium comprising Adani Ports and SEZ Ltd, John Keells Holdings PLC, and the SLPA - became operational in April 2025. It is the first fully automated container terminal in the Port of Colombo and features a 1,400-meter quay length and 20-meter depth, making it suitable for ultra-large container vessels. Meanwhile, the Colombo East Container Terminal commenced operations partially by the end of last year and would become fully operational by the end of this year. Hence, the port as of now is in a better position to handle increased activity levels compared to 2 to 3 years ago. If the new container terminals had been constructed on time, the country could have earned huge dividends. 

The two sectors of the economy that possess the highest potential for growth are tourism and logistics. Strategically located in South-East Asia, at the crossroads of the fastest-growing region in the world, Sri Lanka is close to many emerging markets and has the potential to become an important logistics hub for the region. Unfortunately, trade unions attached to the SLPA as well as parties with vested interests have obstructed the progress of the sector.

The time is now ripe for the nation’s policymakers to act decisively and implement forward-thinking reforms to transform the island into South Asia’s leading maritime, logistics and distribution hub to support the national economy.