Rohan Masakorala speaks on maritime, shipping and logistics as IMO turns 70

Rohan Masakorala is the CEO of the Shippers’ Academy Colombo and the Chairman of the Logistics Advisory Committee for EDB on the National Export Strategy of Sri Lanka. In this interview he speaks about maritime, shipping and logistics. Following are excerpts:

Q: What is significant with IMO turning 70?

A: Shipping and international trade always need the oceans and the ocean in large scale does not belong to any country, which means you need laws to avoid conflicts in a civilised governance system specially after the end of World War II. Conventions such as SOLARS goes back to 1914 when the Titanic tragedy happened but formalising of maritime laws began with the establishment of the UN in 1945 and the creation of IMO in 1948 which marks the beginning of a new world order to the oceans. 

This year IMO marks 70 and celebrate the 60th anniversary of the enforcement of IMO activities after Japan became the 21st nation to ratify IMO convention in 1958.In fact I got the Government of Sri Lanka to declare a maritime week from 21 to 27 September when I launched the Colombo International Maritime Conference (CIMC) in 2015 and a first day cover was also launched by the postal ministry. Today oceans are more complicated due to human activity and now after 70 years we must be more focused on the oceans as security and environment are key to sustainable oceans. So indeed IMO 70 is a significant milestone for the maritime industry. 

Incidentally this is in line with Sri Lanka too as we celebrated 70 years of independence and is in the middle of the Indian Ocean which is the cross roads of global trade. At the same time the 21st century geopolitical interests are gathering clouds around the Indian Ocean. In my opinion it is time that IMO may need to expand its scope as we are seeing the tensions in the South China Sea and spilling effects to the Indian Ocean. So, the next task and challenge for IMO would be to increase the rule-based transportation and the use of the ocean. Maritime nations may have to cooperate to agree to a rules-based conduct to avoid future conflicts and to maintain stability of the oceans as well.

Q: How did you enter the shipping sector?

A: Shipping is my off-shoot interest, in fact I have no formal qualification in shipping, but executive training at Cranfield University on Supply Chain Management. I hold a bachelor’s degree in Economics and Business Administration; it is exports that I believe in and I strongly believe it will help a small nation to move forward and expand trade-led growth with multiple benefits to the country. Many sectors will expand if we extend the trading environment and create derived demand for services.

Certainly, shipping and now logistics are key components of exports and that is the reason I started studying and understanding the subject so that I can participate and defend the exporters’ rights whenever some service providers behave in an anti-competitive nature and in some cases doesn’t act within compliance. That is why I argued for 17 long years on the imposition of a terminal handling charge on exporters who don’t enter into contracts with service providers. 

It was my company Hayleys PLC in the early 1990s that gave me the opportunity to be what I am today, be it exports or logistics, all my bosses late Dr. D.S. Jayasundera, Sunil Mendis and my immediate boss for a long period late RajanYatawaraencouraged andtaught us exports and related fields of international trade and made us understand in depth the full circle. In fact, Yatawara always advised me, when it comes to national issues to put the country first and not the company’s interest and this was my success as the Chairman of the Sri Lanka Shippers’ Council. I always taught to answer to my own consciousness before I embark on a journey. 

I can tell you Hayleys’ training in the 1990s is what I consider as my masters. Not only that, they taught us values, ethics, quality and best practices but also to think out of the box. Later in my life working with the leaders of the apparel industry as Secretary General of the Joint Apparel Association Forum I believe I got a Phd from them! These are valuable experiences one could get from the university of life. Exporters know to compete in the international market with global forces, they cannot get Government protection to run their businesses and out there it’s not easy ground. This is the culture we must incorporate in our people as the 4th and 5th industrial revolution demands more innovative people not protected people.

Q: How do you see Sri Lanka in this 70 year of the maritime history?

A: During my 27 years as a person with interest in the sector, the good, the bad and the ugly has happened, certainly we have had many good starts and then lost opportunities. Our location which in my opinion has now been over spoken with less action has made us vulnerable. It is indeed a nature’s given gift, or one would say a god given resource the country has had, but we have never properly converted to our advantage since independence due to self-centred thought process of most people who have governed and guided the sector for most of the time. 

If one looks at our modern history, since colonisation in 1505 it is the colonial powers who built and developed our main ports, which includes Colombo, Galle and Trincomalee. In 1977 we saw a resounding effort to develop the port sector with the open economy coming to place and the container transshipment business was born under President Jayawardena. Coming into the recent past the Chinese have invested in terminals and ports which has got them nearly 85% of control of important port terminals. 

There have been few people like late Karandawala, late Minister P.B. Kalugalle and late Minister LalithAthulathmudali who have made very positive strategic inroads to the maritime industry looking at the country’s interest first, but they have short lived and rest of it has been simply messed up by politicians, officials and the business community itself. Probably I would call it a joint effort for self-destruction! The ugly part is after an end of a devastating war we are still trying to put personal interest first at the cost of our poorest of poor people and this nation’s future at stake. 

Although I come from an exports background and as an economist by profession, I am a firm believer that maritime and logistics would be one of the strongest pillars and tools that we could have been used to become a developed nation and distance ourselves from poverty, but now I am having doubts as the conducive environment is not visible and reform process is painfully slow. Today’s competitive edge is way beyond location, technology and reforms and speed has become equally important to convert Sri Lanka to go beyond counting the transshipment volumes established in the 1980s.

In today’s context big doesn’t kill the small but the fast kills the slow and the latter is becoming true in the real world. Physical wars among nations are dying and trade and tech wars are emerging.

Q: What is your view on port privatisation?

A: It was indeed a good move to bring the private equity to the port sector in 1999 and that should be the model, it has given many advantages, but what I didn’t agree is the equity distribution as the SLPA and JCT could have afforded more shares in both the SAGT privatisation and the CICT privatisation as they were profit making institutions at that time. As a consultant to the President’s office I recommended up to 45% stake and as a compromise to agree for 35% in Colombo south terminals as it was a fact that we always knew capacity increases in the port of Colombo has always seen more business growth for transshipment. 

We must also remember that the breakwaters and the basin of the port and other land-based infrastructure was developed by loans taken on behalf of the public of this country, and they are paying for it through taxes. Therefore, the stake in the core businesses such as terminals where money is generated, a 15% equity to the Government was never a good move in my opinion and I have expressed my candid opinion on this to the people concerned whenever I could, but the logic seems to be going somewhere else. So, privatisation is good but there are many gray areas to me on how we do, why we do and what we do. Governments must always ensure the larger public interest rather than few business or individual interests if we want to get out of the current economic challenges we have.

Q: Colombo port is showing tremendous transshipment growth, what do you make out of it?

A: Indeed, its growing and yields a positive image to the ports of the country, in fact history shows that whenever we added proper capacity at the proper time the port has grown and at the same time when we neglected it the results have been equally bad. Take for example the period 1995 to 1999, our focus was building an international port in Oluvil and completely lost focus on what we had to do in Colombo. There are many instances like that. Coming back to the current growth there are a few factors for it. 

The main reason is Colombo is the only viable port at this moment for mega ships to call in South Asia because of the Chinese built terminal which was opened in 2013. It is the only South Asian terminal that can provide the capacity and the depth the ships want and provide economies of scale although there are some Indian ports with deep draught terminals. 

Secondly, the productivity levels of all our terminals are at acceptable levels and probably ahead of the rest in South Asia and in some cases world class. These are available in reports of ADB and World Bank, thirdly the economic growth in India and Bangladesh especially the East coast of India is generating significant volumes, so given these factors and the location it is kind of automatic that Colombo becomes the hotspot for transshipment for ship owners in this part of the world. Whilst we should be happy with these numbers we should not be complaisant.

The competition in my opinion on South Asia is just beginning and we are going to a decade where we will have domestic competition with Hambantota on track for container operations with Chinese company recently announcing that 20 million TEU terminal will be built. At the same time across the industry all are questioning the delayed East terminal in Colombo, even if it starts procurement of equipment tomorrow it will take a good one year or more for it to get running. In my opinion it must be a PPP with a greater investment from JCT/SLPA. If we had East terminal operational two years back probably we could have had eight million TEU by end of 2018 instead of forecasted seven million.

Q: What is your view on Hambantota?

A: Everybody now knows it’s a Chinese managed long leased port now, we cannot change what has happened due to grave mistakes in the past but hope that industries will come up around it to support the Sri Lanka economy and the multiplier effect will help the country. At the opening ceremony in 2010 I was invited to makecomments on this port as the then Secretary General of the Asian Shippers’ Council and it’s on record that I supported the port project’s first stage as a Sri Lankan, provided that the port had a financial plan and a marketing plan, seems now that both were not there, nor I have seen abusiness feasibility study with discussions with ship owners. 

The logic of going into the second phase without much business is beyond my comprehension and that it where we got into debt issues. For China it is an important node for its BRI project which is a very long-term strategic plan for maritime connectivity and ocean interests of that country and we cannot blame them for any reason for the situation we have created.

As for the past I can tell you that when I was in the board of Sri Lanka Ports Authority in 2001 for a short period withformer Minister Ronnie de Mel whom I had worked for a long time, Ican tell you we never had a plan to build a mega port in Hambantota with foreign loans, in fact Minister de Mel made a statement to me in 2001 when we were in London to negotiate with the war risk committee of Lloyds on the insurancepremiums, he saidthat “Hambantota will never be built by foreign loans” but his idea was to complete the Colombo South harbour by 2004 and from the money generated from Colombo to build an oil jetty and oil tanks in Hambantota to supply shipbunkers and develop it on a step by step basis without harming Colombo’s interest. 

Tables were turned around to say the least and we are what we are with Hambantota today. My only concern is as logic speaks if Hambantota as announced to become a container port within a decade it is going to create problems to Colombo’s interest. Two major container ports within a short distance is going to have issues, it is not going to be like Singapore and Malaysia as Hambantota will have a greater direct advantage with the shipping lane and the proximity to Indian East coast which is our main catchment area and China controlling a large amount of global shipping capacity the business model with Colombo is yet to be seen clearly.

Only the future and time will tell that story. Maritime spatial planning in this country seems to be never properly thought of although we are blessed with the world’s best location. Otherwise we would have never wasted time on some projects like Oluvil or phase two of Hambantota. I don’t like to give rosy pictures all the time, we must be realistic and face the real problems, understand competing forces, then only we will bring some logical answers. But in terms of ports we have done many self-inflicting wounds probably for the gain of a few people. 

At the same time, one must note that India has been very clear that it wants to reduce transshipment reliance via Sri Lanka, in the recent past as a fully open nation for ship owners it has relaxed cabotage laws, liberalised port tariff regimes and are in the process of amending the Shipping Act to permit transshipment in India. So, these are issues we must discuss and answer at macro level.

Port of Colombo

Q: What is your stance on liberalisation of shipping and do you think the local industry has a monopoly?

A: My belief is that, the shipping industry is in transition, we must start seeing the big picture. In fact, I was correct in predicting in 1998 as the then Sri Lanka Shippers’ Council Chairman that container shipping business will be an oligopoly, it is in my AGM speech I mentioned this. Now 20 years later indeed it’s an oligopolistic service and we will be left with 5-6 major players by 2030, so we need to adjust to new environment which may not be very shipper friendly in the long run.Regarding monopoly, I don’t want to comment as it is now a matter to the courts to decide as some have sought redress from the justice system, but one thing I can tell you is most of our laws are ancient and not suited for a modern maritime and logistics free economy. This soft infrastructure must be corrected and the merchant shipping division itself should be completely revamped and a logistics services must be identified as a separate element.

With regards to liberalisation, yes, I have been an advocate for greater opening in terms of equity to ship owners and global logistics companies to build the sector with some modest investments. As a free economy aspiring to be an Indian ocean hub we need to open for international brands, multinational companies to do business using our location with reasonable investments to create the volumes and critical mass to move to the next level as a hub. We cannot expect global business leaders to be minority stakeholders in their own business in our country and expect them to transform the country to a logistics and a maritime hub. 

As at now they will do transshipment what is possible and seek new destination whenever they are economically viable as they do not see Sri Lanka as a home base or a regional base with the current legal and operational structure. In fact, we should do away with age-old closed-door systems such as licensing regimes and tariff protection regimes for the maritime and logistics industry while we call our self the freest economy in South Asia, certainly we are not in that sense for shipping and logistics. 

Opening will also create new areas of opportunity to our young people to work with global giants, brands and get exposure through them to work in other countries. The eco system that global multinationals can create are beyond our local operators, so we must encourage new model shipping industry and logistics industry. In my opinion local companies will gain rather than lose as all studies and statistics shows this in other major hubs.

When the new government announced the policy change for 2018 to open the sector further, I was very happy, it in fact came to me also as an unexpected shock. I supported it, as I said we need international companies to make Sri Lanka a major shipping and logistics location, that’s the only way we can transform into an Indian Ocean hub by 2025. That doesn’t mean that local service providers will disappear at all, on the contrary it will give new avenues and new employment opportunities just like Singapore, Dubai and Hong Kong that have evolved and are operating right now with massive employment generation to the locals and converting the cities into major financial centres. 

Opening in equity will bring transparency, efficiency, competition, and greater interest to all our ports, and in return, innovation, higher service quality and greater commitment of business owners to infuse capital and technology to the country will take place over a time. In fact, we could have secured our own ports and terminals in our favour for the country if the ship owners and logistics companies were part of our national equation, rather than treating them as foreign invaders by some, whilst asking them to use our ports and give them business, one must realise that we don’t need big investments from shipping companies to hold their own offices here. 

I am a firm believer that whenever a container ship owner routes ships via our ports it’s an indirect investment to the country. The multiplier effect to the economy comes from that ship and its presence in a port or in our economic zone. We should welcome them in bigger numbers and encourage them to come and convert places like the financial city into a buzzing maritime city like Singapore. So, in short, we will not become a maritime or a logistics hub until greater freedom for the sector is established.

I must emphasise that this certainly doesn’t mean we remove all regulatory aspects as many mix up these two. In fact, as we liberalise for investments the regulatory aspects must be strengthened to ensure fair trade practices just like in any other developed nation; that is how you balance things.

Q: How do you see maritime order in the Indian Ocean and Sri Lanka’s role for next few decades?

A: Sri Lanka can play a vital role in the Indian ocean, as mentioned geo-politics is slowly moving to the Indian ocean, as we know ocean belongs to all, we need secure, sustainable oceans. Asia with its economic growth, massive population will have greater demand for goods and services over the coming decades. In a few decades time China and India will be the big economic powers along with the US, all of them would be very focused on the Indian Ocean for trade, resources and security, the determination of Indian Ocean countries and the global powers should be to put trade ahead of any military agenda whilst securing and cooperating with each other. 

We as a country need to make Sri Lanka a trading and a logistics hub, provide all related services to international users of the ocean and internally modernise and focus on an export driven growth model. We have embarked on our National Export Strategy (NES) and now we need to walk the talk to implement it right. To do this we must embrace change. Think differently to see the world as the market place for our products, encourage bilateral FTAs and FDIs and do things as required by the fourth industrial revolution with technology and skills expansion.

In doing so one important thing is to minimise corruption and bring the rule of law both at ocean and land and accelerate the reforms. Otherwise we might be lost at sea with an island mentality! Also, we must stop talking and flying at thirty-five thousand feet with ideas only. Action, follow-up and understanding and resolving ground level issues are the need of the hour in my opinion as we have been too slow for decades and yet to see that change in the mind set.

Q: What is your stance on liberalisation of shipping and do you think the local industry has a monopoly?

A: My belief is that, the shipping industry is in transition, we must start seeing the big picture. In fact, I was correct in predicting in 1998 as the then Sri Lanka Shippers’ Council Chairman that container shipping business will be an oligopoly, it is in my AGM speech I mentioned this. Now 20 years later indeed it’s an oligopolistic service and we will be left with 5-6 major players by 2030, so we need to adjust to new environment which may not be very shipper friendly in the long run.Regarding monopoly, I don’t want to comment as it is now a matter to the courts to decide as some have sought redress from the justice system, but one thing I can tell you is most of our laws are ancient and not suited for a modern maritime and logistics free economy. This soft infrastructure must be corrected and the merchant shipping division itself should be completely revamped and a logistics services must be identified as a separate element.

With regards to liberalisation, yes, I have been an advocate for greater opening in terms of equity to ship owners and global logistics companies to build the sector with some modest investments. As a free economy aspiring to be an Indian ocean hub we need to open for international brands, multinational companies to do business using our location with reasonable investments to create the volumes and critical mass to move to the next level as a hub. We cannot expect global business leaders to be minority stakeholders in their own business in our country and expect them to transform the country to a logistics and a maritime hub. 

As at now they will do transshipment what is possible and seek new destination whenever they are economically viable as they do not see Sri Lanka as a home base or a regional base with the current legal and operational structure. In fact, we should do away with age-old closed-door systems such as licensing regimes and tariff protection regimes for the maritime and logistics industry while we call our self the freest economy in South Asia, certainly we are not in that sense for shipping and logistics. 

Opening will also create new areas of opportunity to our young people to work with global giants, brands and get exposure through them to work in other countries. The eco system that global multinationals can create are beyond our local operators, so we must encourage new model shipping industry and logistics industry. In my opinion local companies will gain rather than lose as all studies and statistics shows this in other major hubs.

When the new government announced the policy change for 2018 to open the sector further, I was very happy, it in fact came to me also as an unexpected shock. I supported it, as I said we need international companies to make Sri Lanka a major shipping and logistics location, that’s the only way we can transform into an Indian Ocean hub by 2025. That doesn’t mean that local service providers will disappear at all, on the contrary it will give new avenues and new employment opportunities just like Singapore, Dubai and Hong Kong that have evolved and are operating right now with massive employment generation to the locals and converting the cities into major financial centres. 

Opening in equity will bring transparency, efficiency, competition, and greater interest to all our ports, and in return, innovation, higher service quality and greater commitment of business owners to infuse capital and technology to the country will take place over a time. In fact, we could have secured our own ports and terminals in our favour for the country if the ship owners and logistics companies were part of our national equation, rather than treating them as foreign invaders by some, whilst asking them to use our ports and give them business, one must realise that we don’t need big investments from shipping companies to hold their own offices here. 

I am a firm believer that whenever a container ship owner routes ships via our ports it’s an indirect investment to the country. The multiplier effect to the economy comes from that ship and its presence in a port or in our economic zone. We should welcome them in bigger numbers and encourage them to come and convert places like the financial city into a buzzing maritime city like Singapore. So, in short, we will not become a maritime or a logistics hub until greater freedom for the sector is established.

I must emphasise that this certainly doesn’t mean we remove all regulatory aspects as many mix up these two. In fact, as we liberalise for investments the regulatory aspects must be strengthened to ensure fair trade practices just like in any other developed nation; that is how you balance things.

Q: How do you see maritime order in the Indian Ocean and Sri Lanka’s role for next few decades?

A: Sri Lanka can play a vital role in the Indian ocean, as mentioned geo-politics is slowly moving to the Indian ocean, as we know ocean belongs to all, we need secure, sustainable oceans. Asia with its economic growth, massive population will have greater demand for goods and services over the coming decades. In a few decades time China and India will be the big economic powers along with the US, all of them would be very focused on the Indian Ocean for trade, resources and security, the determination of Indian Ocean countries and the global powers should be to put trade ahead of any military agenda whilst securing and cooperating with each other. 

We as a country need to make Sri Lanka a trading and a logistics hub, provide all related services to international users of the ocean and internally modernise and focus on an export driven growth model. We have embarked on our National Export Strategy (NES) and now we need to walk the talk to implement it right. To do this we must embrace change. Think differently to see the world as the market place for our products, encourage bilateral FTAs and FDIs and do things as required by the fourth industrial revolution with technology and skills expansion.

In doing so one important thing is to minimise corruption and bring the rule of law both at ocean and land and accelerate the reforms. Otherwise we might be lost at sea with an island mentality! Also, we must stop talking and flying at thirty-five thousand feet with ideas only. Action, follow-up and understanding and resolving ground level issues are the need of the hour in my opinion as we have been too slow for decades and yet to see that change in the mind set.