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Global shipping giant Maersk’s Group Senior Director – SouthAsia Julian Michael Bevis was in Sri Lanka recently to witness the historic moment where the world’s largest ship, ‘Triple-E liner’, which is 400 meters in length with a capacity of 18,000 to 20,000 TEUs owned by Maersk Line, calling at the Colombo port. He was highly impressed with the progress of Colombo Port and terms it as a ‘great success story’. He believes that Sri Lanka needs to move away from protectionism to a liberalised framework, noting that the Government policy outcome would determine the success of this country. During his short visit, Bevis spoke to Daily FT about future investment plans, the way forward for the shipping industry in Sri Lanka, policy reforms and function. Following are excerpts:
Maersk Group Senior Director – SouthAsia Julian Michael Bevis – Pic by Sameera Wijesinghe
A: Taking your first point about the Maersk worldwide business, I certainly wouldn’t say it has declined. There is no question that the rate of growth of the world economy and the world container business has slowed down compared to where we were four to five years than it is now. Despite the economic uncertainties around the world, economies have adjusted to the changing circumstances and trade has continued to grow being a vital component of many economies.
As far as South Asian economy is concerned, Sri Lanka is an important part of that which is growing faster than the rest of the world. However exports from Sri Lanka are not growing as rapidly as it should be. Comparatively imports are growing faster, which is a good sign. Some of the economies are developing a trade deficit, but it exemplifies the fact that there is demand and the economy is growing. This is one of the reasons why we want to continue to enhance the level of service both in terms of transit times and reliability. We are very keen to focus on ‘specified markets’ the exporters are mainly looking at and support them. Our services don’t just stand still — we keep on evolving both in terms of capacity, transit times, and the way the network is ranged. Therefore we are able to serve the specified export markets that are focused by the Sri Lankan exporters.
As for the size that the Maersk enjoys, operational arrangements we have in terms of our schedules, we are able to serve markets at any rate, able to try and differentiate the products that we deliver from container availability to port selection to transit time. The capacities that we have in our worldwide range of destinations provide the ability to tailor services to what markets want. People will think Maersk being the largest, it is a matter of size – but it is not. It gives you the ability to the way you do things on a greater extent than other operators.
A:As a group we have already invested considerably in Sri Lanka. We are a major shareholder of the South Asian Gateway Terminal (SAGT), which is the first privately-run terminal in the Colombo Port. We obviously have a big investment in our organisations, both Maersk Line and Dam Co., the logistics arm of the group, in terms of the services we offer to the port. In every single import and export market one way or the other we provide coverage, which itself is a big investment.
In terms of future investments, the Government of Sri Lanka through the Ports Authority has opened the tender process for East Container Terminal (ECT) and APM Terminals is also one of the bidders for the ECT. APM Terminals with our local partners, John Keells, with which we have a longstanding relationship here in Sri Lanka and also with an Indian partner, namely Container Corporation of India, we have bid for it.
The Government of Sri Lanka has made it a condition that bidders include an Indian partner. We have invested substantially in India in container terminals, inland facilities with Container Corporation of India. We have a longstanding relationship with them as a user and a joint investor. It is an open tender process and administrated on behalf of the Government by the Asian Development Bank (ADB). We are very hopeful that we would succeed.
The preparedness to commit to this sort of resources, especially peopleto get these bids together and the process, is timeconsuming. There will be a requirement at some point to spend a lot of moneyas it is a big project. On the inland side, as the Government develops it plans for Sri Lanka to become a maritime hub, which I think is an inspired idea of the Prime Minister Ranil Wickremesinghe, this will need a lot of physical infrastructure around that and we are certainly keen to invest on that if the opportunity arises. Of course, as the economy opens up, we certainly receive very positive signals from the Government that Sri Lanka is open for business.
Then there will be other opportunities, which I have no doubt whatsoever in maritime infrastructure, not just in Colombo but also in Hambantota (maybe not immediately). I think the general message is that with the change in Government during the past 18 months, there is tremendously positive view of doing business. This Government is taking a pragmatic view for business proposals, where companies could actually interact and accommodate those ideas by developing policieson a bilateral basis. I think it is really encouraging to see a Government talking like that. At the recently-concluded Colombo International Maritime Conference, the Premier and other Government Ministers spoke extensively on their long-termdevelopment plans for the sector and it is vital to see a close dialogue with the private sector.
A: Of the total throughput of the Colombo Port, we have around 25% market share including cargo, not necessarily Sri Lankan in origin. Other areas obviously are transport infrastructure. However, the big ticket at the moment is the ECT and further down the track is inland infrastructure. If you look at the activities of the Maersk Group, we are involved in energy, oil, drilling, operating tankers, offshore supply boats, towage and so on. It is found that Sri Lanka has hydrocarbons although resources are not entirely surveyed yet, but as the economy opens up there is going to be work on to do that. I am confident that all of these will present opportunities to us overtime as Sri Lanka needs to augment its energy capabilities and present opportunities.
There is a lot of cargo going in from India, Bangladesh, Myanmar and whole of the Indian Ocean via Colombo and in terms of transhipment, it is predominantly Indian cargo. The Indian economy grows around 7.1% and the prognosis of the economy is very positive. Within that, inevitably there is going to be an increasing component made of international trade as Indian Prime Minister Rajendra Singh Modi is trying to make policies gear up for that with a lot of emphasis on its maritime sector.
A: I think Hambantota at the moment has container facilities, but the fact remains that most operators and facilities are here in Colombo. To split the operations in a relatively small market is a bit difficult. I think the container development of Hambantota will probably be slow compared to the developments taking place in Colombo. It is not to say that it wouldn’t develop as a port, because it is already being used by some overhaul operators as a transhipment hub for assembled vehicles going out of India. The bunkering facility has been bid for at the moment by the Ports Authority. With the present Government’s policies emphasising heavily on the tourism industry, there is opportunity for cruise operations. I think Hambantota will develop, but definitely not in a rush.
A: I think the rate of growth in Colombo will slow as India develops its capabilities, but I certainly don’t think it’s all suddenly going to disappear. As the Government of India develops its Sagaramala Project, smaller ports, attendant urban infrastructure, transport infrastructure and manufacturing development will definitely arise and there will be a demand for those ports to be provided with shipping services. To cater to this increasing demand, they will have to have a hub somewhere and Sri Lanka is ideally located for that. At the same time your implicit question is right — there would be more direct services to places like Chennai, Cochin and Mumbai.
The fright of Indian ports developing will highly depend on the Ports Authority, the Government and all the stakeholders in Colombo that maintainthe level of service and cost competitiveness in every sense of the word. You can’t sit here and think business is going to come. There is no question Sri Lanka’s Port of Colombo is a great success story. When I first came here, there was nothing and look at it now — it has grown way beyond the expectations. It is critical for Colombo Port to keep evolving to make sure it is cost competitive. They got to make sure that not just the cost of lifting a container on and off a ship is competitive, but all the other elements which contribute to cost are competitive too such as the reliability, availability of berthing windows, vessels to be handled as quickly as possible, competitive landside infrastructure, competitive processes and so on.
Dubai and Singapore transhipments are done very efficiently with very little administration, where other countries want to duplicate the same system, but it is not a foregone conclusion. Sri Lanka’s maritime community, especially the agents, have to make sure what they are doing is as cost effective as they possibly can make it. Importantly, in all of that, the best regulator is the market. The Government I believe has to assist in granting approval, but it shouldn’t regulate. It needs to be market driven on broad rules. The market will determine who succeeds or fails and decides on what you charge and not charge, rather than Government doing it. If the Government continues to intervene, whether it is agency fees or local corporate governance rules or anything relating to it, it would distort the market — it is not an efficient in the long run. It may provide short-term protection, but it also provides long-term inefficiency. The best way is to let market determine it.
A: The sea freight market is as open as it’s possible to be. The market is difficult at the moment because the sea freights are as low as they have ever been, but that is definitely good for importers and exporters where it makes life uncomfortable for us. However, that’s how the markets work and we need to respond to that.
I think there are certain things which can be done in Sri Lanka. In terms of the Government’s application of interventions in the pricing market, it shouldn’t declare ‘you can’t charge terminal handling charges’, which I think is allowed in most other markets and that’s something that Government should consider. Every coin has two sides to it, but I think a sensible debate about that would not go amiss. I think there are issues in the way in which agencies are structured and if the Government is really serious about the opportunities to make Sri Lanka a maritime hub, all these facets have to be considered as well.
I know these policy reforms are not easy at all; some of these policy issues are complicated. At the end of the day what is absolutely key is success of this country, not just the port — whether it provides a competitive service package in the full sense of the word. If it resorts to protectionism rather than liberalisation, then in the long run it isn’t going to work as well as it should. In this scenario what we or anybody wants to do is create economic prosperity for this country and thereby to create employment for young people. We have a responsibility to provide jobs; it is important to create the right legislative environment and remove barriers as much we can.
The Indian Government now clearly sees logistics and ports as a vital part of their economic policy. Over time not only they would develop hubs, but all the legislative arrangements around them which are necessary to make India a focal point in this part of the world. In India’s ship agency business, there are no rules about shareholding and the rest of it. If somebody wants to run their own agency, they can – whetherthey are Indian or somebody from outside — which gives them the cost advantage. This is something serious that Sri Lanka has to think about. The Government needs to evaluate the policy outcome of all these factors. Eventually, it is up to the Government because they have to balance a quite a number of considerations. To answer your question, it is something that needs to be on the agenda, yes.
A: We have been operating through MaerskLanka for nearly 25 years and MaerskLine has been operating through third party agents for 50 to 60 years. We have been lucky enough to have a very talented workforce and we also have a fair number of Sri Lankans who have taken up jobs in Maerskwithin our global workforce in different parts of the world. To being in good people, the group is giving them good interesting jobs, training them and then if we can we moving people around the world. At present in Colombo we have close to 100 employed.
In terms of attracting FDI, it comes back to the regulatory environment. There is a young energetic and reasonably flexible labour force here, but the physical side of the infrastructure needs to be addressed. Equally, one has to look at the regulatory side again in a joined up world, if Sri Lanka is competing with India or Dubai or with other parts of the Indian Ocean. It has absolutely a prime location, but that isn’t enough. There’s quite a lot to do in the regulatory space. There’s a whole host of things that need to be improved and importantly the political will to do something about it is very encouraging.
Our operations here have always been good. We very much like to think ourselves as a partner of Sri Lanka. We are very encouraged and hope to be part of that development. It doesn’t mean to say that investments automatically follow, but you have to find the right commercial circumstances and right legislative environment to attract them.
A: Not immediately, because we have an existing management structure and we have existing support centres in other parts of the world. The reason for not bringing some sort of regional structure here is history. All the fighting really stopped seven years ago. During that period it was not possible, but now all that is behind us. You got to have the right infrastructure, the right cost structure, flexible labour market and legislation. It’ll take time, but we will certainly look at it when the opportunity arises. No business ever stands still.
