CASA warns of unintended consequences from relaxing foreign ownership restrictions on shipping agencies

With the talks of shipping industry liberalisation coming back to the fore, the Ceylon Association of Shipping Agents (CASA) recently warned that easing of foreign ownership restrictions would lead to foreign exchange outflows, loss of tax revenue and local employment, with no apparent benefits in particular towards positioning the country as a maritime logistic hub.

“The easing of the foreign ownership restrictions will adversely affect the SMEs that handle a few ships per year. It is likely that such a move will lead to large repatriation of currency overseas, depriving the country of the US dollar earnings and tax revenue. It will also have an impact on local employment. It is estimated that the jobs of current workforce in excess of 12,000 will be at stake,” the CASA said in a statement.

According to the CASA, the shipping agents service over 7,300 casual caller vessels (non-container vessels) per annum. The majority of this business is canvassed and promoted by the local shipping agents, who are mainly SMEs. 

The current regulations allow foreign ownership to handle all activities, with the only exception of shipping agency and freight forwarding, which is restricted by the law up to 40 percent. 

Given the nature of the ship agency business, which is low capital intensive and service oriented, with local expertise and know-how, the CASA pointed out that there is no evidence to suggest that opening up the full ownership to foreigners has brought in significant FDI into a country, purely for establishing a shipping agency.  
Further, it underscored that the equity holding in agency businesses is not linked to a number of services, shipping freight rates or equipment, as those factors are not determined by the shipping agencies.

“It is understandable that there’s no relationship between the freight rates and agency ownership structures. This is evident from the current freight rate reduction that we see in the market today, where most rates have declined by over 100 percent (YoY), due to market factors. 

There is healthy competition for freight services in and out of the Port of Colombo, with all major carriers calling with weakly services,” it stated.

The CASA also highlighted that there is no evidence to support that the ownership restriction in shipping agency business has precluded any country from becoming a maritime hub. 

“A prime example of this is Dubai, which grew to be a logistics and shipping hub whilst requiring a local partner for shipping agency business until 2021. Even Western countries such as the USA still have regulations such as the Jones Act, which stipulates that all coastal cargo vessels need to be locally owned and have the US flag. Countries such as Bangladesh and the Maldives also have similar policies to help the local industry to develop and retain foreign exchange earnings within the country,” it added.

With all other segments of the maritime industry such as terminals, warehouses, depot infrastructure and ancillary services infrastructure, which are components required of a maritime hub, remain fully open for 100 percent ownership, the CASA identified the recent calls for the shipping sector to be ‘liberalised’ as a misnomer, which would mislead the public and policymakers.

Despite the restrictions on ownership in the shipping agency business, it noted that there are no restrictions for shipping lines or logistics operators to set up their 100 percent-owned headquarters or regional offices in Sri Lanka.

“Even the Port City offers these opportunities for shipping lines to set up administrative regional headquarters in Sri Lanka. The proponents advocating liberalisation seem to have confused the distinction between the operation of a shipping line and that of an agent,” it stated.

The CASA underscored the lack of consistent policy, unattractive benefits, bureaucracy, red tape and delays in doing business, as key reasons for lack of investment in facilities and the maritime hub services in the country.
On the contrary to the accusations on lack of investments by shipping agents, the CASA emphasised that its members have not only invested in infrastructure and assets such as inland container depots, warehouses, free zones, ships and marine crafts but also have expanded regionally and globally, earning the much-required foreign exchange for Sri Lanka.