Is Colombo ready to take on ‘regional maritime hub’ role?

In every shipping/maritime or logistics related forum/conference that you attend, whether it is in Sri Lanka or anywhere else in the region, Colombo’s plans to move to the big league as a major regional maritime and logistics hub is gathering momentum.

This fact by itself is a very good sign. It shows that the regional and local stakeholders, who will be playing an active role in moving Colombo to this big league, have given due recognition and taken our ambitions very seriously. But it would be naïve to think that by this focus alone Colombo would achieve the desired status of being the major regional maritime hub.

To achieve this status, many changes need to be done and these changes need to be done with an ‘out-of-the-box’ approach. When doing this, it is imperative that a process of consultation takes place with all the relevant stakeholders. Although consultation may not necessarily mean consensus, it will certainly provide for compromise, where necessary. The first step towards making the necessary changes is to identify the real stakeholders.

Taking a look at it purely from a shipping and ports perspective, the real key stakeholders, among others, would be the main shipping lines, the feeder shipping lines, the Government and private terminal operators. Of course it is understood that the Sri Lanka Ports Authority together with the Ministry of Shipping and Ports would have to play a very critical role in the matter of policy formulation and implementation.

Basic requirement: Transhipment container volumes

It has been established beyond doubt that Colombo’s throughput volumes will be almost totally dependent on transhipment cargo. The domestic volumes will play a role only if there is going to be any significant increase in the export/import trade. There do not appear to be many signs in the horizon of this happening in the immediate future, but it is bound to happen sooner rather than later.

We can take comfort from the fact that the projected transhipment throughputs and as to where all this is going to come from have all been collated, dissected and digested by many world-renowned shipping and port consultants and proven through historic data.

This work was done by many independent studies carried out by the SLPA and other investors in the private terminals. The studies carried out by the multilateral lending agencies which financed the huge infrastructure development work in the Port of Colombo during the last 10 years or so also confirms the availability of transhipment volumes required for the payback for financing these multimillion dollar investments.

The projected throughputs have all been put to the test by institutions such as the Asian Development Bank and Japan International Cooperation Agency, etc., which have funded some of the major development works in the Port of Colombo, based on these feasibility studies.

Hence, it can be taken as a given that the transhipment volumes are there for the asking, provided of course the other impediments or ‘hazards’ are taken out of equation from the rest of the ‘course’!

The key players

Long haul mainline operators: It is understood that the owner of the cargo, be it buyer or seller, will be calling the final shots when selecting a shipping line and the route the cargo should take. By the same token their decision will almost certainly be based on economics/price and shipping/transit time.

The function of selling the cargo slots/space to the cargo owner is the primary function of the shipping line. The function of the transhipment hub operator (port and terminal operators) is to do everything to stay attractive to the shipping lines.

The question that comes to mind is, are we doing enough to keep the shipping lines attracted to Colombo?

We need to address this question, bearing in mind that the ‘hunt’ for transhipment volumes in the port industry is a highly competitive business. It is the reality of a dynamic and competitive business environment to expect the customers to swap their allegiance at very short notice – especially when there are many other hubs vying for the same volumes. This could happen due to many reasons, not excluding the all important regulatory requirements and/or their lack.

Feeder shipping lines: The Feeder shipping lines play a very critical role in the success or failure of any transhipment hub. In fact it is not possible to run a transhipment port on a ‘hub and spoke’ concept unless there is a very reliable, efficient and competitive feeder network in place.

This network needs to link the ‘hub port’ Colombo with all the small regional ‘spoke ports’ in the region. Colombo has been blessed with such a feeder network supported by the top regional feeder operators ever since the Port of Colombo went into containerisation. Hence, they have played a major role in the success of the Port of Colombo to date and they continue to do so.

But, over the years, there has been a myth established by the terminal operators in the Port of Colombo that the feeder shipping lines do not play such an important role, but only a complementary one. Accordingly, they have been relegated to a position whereby their requirements do not get the due attention that they very much deserve from the terminal operators.

However, to the credit of both the Government and private terminal operators, it should be said that one of the longstanding and major concerns of the feeder operators regarding ‘direct billing’ to the main line operators was implemented a few years ago.

This gave a tremendous boost to the feeder operators and it was an excellent initiative by the port. The feeder operators responded very positively by continuing to support Colombo even during the most difficult periods.

Notwithstanding the above, there are two major concerns that have been raised by the feeder operators over the years, which have always been put on the backburner. These two issues relate to:

Request for priority berthing and/or berthing windows

The feeder vessel operators on their short-sea voyages are subject to the vagaries of the weather – more so because of the vessel size – and also due to the operational constraints and labour strife that takes place on a regular basis in many of the Indian sub-continent ports that they ply to.

Both of these issues are outside their control.

However, due to these two main reasons among others, the feeder operators do have a genuine problem with regard to maintaining their schedule integrity. Hence it is the responsibility of the terminal operators to put in place a berthing policy/mechanism that would address this issue.

What both parties need to realise is the fact that the very survival of the transhipment business is dependent on making ‘timely’ connections to the main haul shipping lines and vice versa.

Request for volume-related incentives

With regard to volume related incentives for feeder operators, the Colombo terminals do not have such an advertised scheme in place. But most of the hub ports competing with Colombo have such incentive schemes in place.

Whilst it is agreed that transhipment volumes will continue to be the ‘call’ of the main haul shipping lines, the port needs the support of an efficient and reliable feeder network in order to sustain the hub status. Therefore, it is now timely to revisit this issue, which has been in the air for a very long period of time.

Current regulations: Colombo is over-regulated

As far as the shipping industry is concerned, Sri Lanka has a unique regulatory environment, which is different to other competing hub ports.

The present regulations pertaining to the main global shipping lines setting up their own offices in Sri Lanka have been put in place many moons ago. Under these regulations, the global shipping lines (which are the backbone of the transhipment shipping industry) have an ownership restriction of 40%, if and when they open up office here in Sri Lanka. There would have been some reasoning to have introduced such ‘unattractive’ legislation at the time it was introduced.

However, whether there was any genuine justification to introduce such rules, and to continue with such legislation, in today’s context, is a question.

It is indeed interesting to note that such a rule does not exist even in India or Bangladesh. This is a critical reason attributed by the major global shipping lines not to set up their regional offices in Colombo. But, if Colombo – and in effect Sri Lanka – is to achieve the much-discussed status of a regional maritime hub, this legislation certainly needs to be reviewed and done away with.

The situation with regard to regulations have been further compounded with the global shipping lines being compelled (enforced) under exchange control regulations, to pay a pre-determined fixed commission to their local agents, for each and every transhipment box that is discharged and loaded in any port in Sri Lanka. It is arguable whether such legislation is required at all in an open market economy.

However, if it is deemed necessary to have such regulation, then the quantum of this payment needs to reflect the value of work done for such payment. It needs to be transparent and reasonable.

Under the existing regulations, the quantum of this legislated payment is a deterrent to the development of transhipment volumes over Colombo. The major global shipping lines have all emphasised over the years that this regulation (cost) is a serious deterrent when doing their numbers on selection of a hub port.

It is very important to note that the above two regulations (restriction on ownership and regulated commissions) do not exist in any of the other competing transhipment ports which are vying for the same transhipment cargo as Colombo.

For example, among others, the ports of Singapore, Dubai or Salalah have no such regulations. These ports know too well that such draconian regulations would only add costs without value. It only makes their ports unattractive and uncompetitive to the shipping lines. It will drive away the transhipment business, in effect threatening the very survival of their ports.

Conclusion

If in fact Colombo is to meet its aspiration of being the major regional maritime and logistics hub, then all of the above needs to be analytically evaluated with an open mind. There will certainly be arguments for and against the above sentiments.

The key to addressing these issues is to open a dialogue with the real stakeholders who have their regional offices based outside Sri Lanka. They need to be given the message that Sri Lanka is serious and willing to listen and review these regulatory requirements.

Over the years, the top global shipping lines calling Colombo have identified these regulations as archaic and not in keeping with the present times.

China is developing so many of its own home ports, similar to what India is doing right now. But Hong Kong, minus the regulations that are existent in Colombo, still continues to play a predominant role in developing its transhipment volumes by serving as a gateway to China. The Port of Colombo is in an ideal position to replicate this and be the gateway to India similar to what Hong Kong is to China.

The Government has played its role in taking the initiative and fast-tracking the development of new container terminals and port infrastructure. Therefore, if we are to attract the major players in the global shipping and logistics arena, it is imperative that we review the existing regulatory framework in the shipping, ports and maritime sector. This must be done with a view to moving ahead of our competition, which is outside Sri Lanka.

For this to happen, the local stakeholders also need to play their role in order to achieve the national vision as spelt out in the ‘Mahinda Chinthana – Idiri Dekma’. They need to view this from a national perspective and explore how best to change these defunct regulations and achieve a win-win situation.

That would enable them to first sustain and then further develop their transhipment businesses. With the abundant pool of visionary thinkers in the local maritime industry, there is no doubt that they would take the leadership in taking forward these initiatives.

Finally, it is appropriate to quote the IMF Resident Representative in Sri Lanka Koshy Mathai, who in his recent presentation at the ICASL, stated: “People have asked me why Sri Lanka should bother to increase its Ease of Doing Business rankings when India has managed to attract high FDIs with the same rankings. But the reality is that Sri Lanka can never offer the same economy of scale as India can. Sri Lanka must be better than India to attract FDIs.”

(The writer is a Fellow of the Institute of Marine Engineering Science and Technology – FIMarEST, UK and a Fellow of the Chartered Institute of Logistics & Transport – FCILT, UK.)