Port sector reforms a must; Sri Lanka faces opportunities and challenges

The Port of Colombo will see its capacity for handling ultra large container ships increasing in the year 2024, as both East Container Terminal (ECT) and Colombo West International Terminal (CWIT) will add new handling capacity by the end of the year. While this is good news for the industry, the readers must understand that this capacity was due about eight to 10 years back and Sri Lanka has lost a lot of business opportunities, due the delayed actions by the consecutive governments and interference of trade unions on port policy and driving away investors.

The results of the negative policies have shown that Colombo has had challenges in bringing in new services, as in the year 2021, the Port of Colombo saw its highest throughput where it nearly utilised the total port capacity of eight million (twenty feet equivalent) TEUs and achieved the highest ever throughput of 7.25 million TEUs. Since then, the growth has been negative/stagnant in the last two years (2022 and 2023), where the throughput was 6.86 million and 6.92, respectively. This is in spite of our major catchment areas of Indian container throughput and Bangladesh container throughput increasing. 

Compared to the year 2022, in the year 2023, the Indian subcontinent throughput has increased by more than 2.0 million containers, where Indian throughput was well over 21 million TEUs, from 19.5 million. The major reason for Colombo to lose transshipment was lack of capacity expansion and increasing direct services to the Indian and Bangladesh ports by ship owners. Interestingly, Singapore has reached its highest level of throughput in 2023, reaching 39 million TEUs, from 37.5 million TEUs in 2022, while Colombo stagnated in the same period.

In the recent months, Colombo has seen a growth of transshipment, due to the Red Sea crisis and it is observed that as schedules have been disrupted, shipping lines are looking at discharging containers in Colombo, due to the prevailing situation and the impact on transshipment in the gulf region. This could be temporary but with the new capacity coming in 2024, Colomb should start growing in a positive direction again.

The market dynamics of South Asia was identified as one of the fastest growing regions in the post-pandemic era by international organisations such as the World Bank, Asian Development Bank and International Monetary Fund. Exports of goods and services as a percentage of gross domestic product (GDP) was reported at 16.78 percent and imports of goods and services as a percentage of GDP was 18.47 percent in 2022 for the region but somewhat slowed down, as the global economy was under inflationary pressures in 2023.

Sri Lanka needs to capitalise on this growth potential of the Indian subcontinent trade expansion, where our neighbour India is set to grow its GDP by 6 percent to 8 percent annually along with Bangladesh.

The Port of Colombo, in order to be globally competitive, needs reforms and those include having a strong predictable policy on public-private partnerships (PPP) and the government moving away from being the owner, operator and regulator at the same time. Although the country was leading in its open market policies in the early 1980s, India has now overtaken market-based policies in the shipping industry, which includes the government moving away from port management, where its largest port Jawahalal Nheru Port Trust now operates as a full landlord model and other major ports are expanding into the PPP models, with global investments. 

At the same time, India has fully relaxed its coastal shipping network for foreign investment and has been 100 percent open for shipping and logistics companies to operate and has attracted billions of investment in dollars in the recent past  for port  and logistics sector expansion projects, whereas Sri  Lanka  has failed to capitalise on the location  for major international  investments in the sector, except on projects that have had government to government proposals and unsolicited projects. Protectionism has been a major obstacle for the sector to expand and contribute to the economy.

The open market reforms and structural reforms and governance reforms in the port sector are a must, if the country needs to overcome the challenges, as the competition and maritime geography of the region are changing rapidly. If Sri Lanka fails to attract competitive capital and knowhow through a transparent system, it may once again be the loser as the location is certainly just one aspect in the modern supply chain management. 

As I recall, it is eight months since the Cabinet was notified through a Cabinet memorandum by the finance minister that the country needs to get out of the protectionism model and sighted ports such as Hongkong as an example. But yet, little has happened in terms of policy in the shipping and logistics sector reforms. In my opinion, this is the biggest challenge and obstacle we have in becoming an advanced maritime and logistics hub in South Asia.

(The writer is an economist by profession and has well over 30 years of experience in the shipping, international trade and logistics industry and is the founder of Shippers Academy International)