In this backdrop we interviewed one of the experts in the field, Kasturi Chellaraja to find out her views on the port development sector. Referring to the current status she says the longer we delay the process we are likely to lose more opportunities for business. “Two years ago we had the chance to pick a suitable business partner; but now we shouldn’t wait any further to pick a country or an operator to run the ECT,” says Wilson, a professional in the Logistics and Maritime industry.
The Government has indicated that the ECT would in future be managed by the Sri Lanka Ports Authority (SLPA) and a final decision on this matter would be taken before the end of this year.
Referring to this, Wilson says it is great that there is progression in the right direction and the SLPA should move into setting up an operating mechanism as the Port of Colombo such as in Hong Kong where vessels are directed to the first available berth. This would mean that all terminals work together as the Port of Colombo, which could result in higher asset utilization and efficiency. “We have four terminals and technically any vessel which comes should be allocated to the first available berth similar to the process in Hong Kong. The liners should be given the opportunity to come in and go out, irrespective of the terminal. Two to four terminals can work together on a cost allocation sheet or whatever the mechanism they agree on,” she explains.
Let’s make it work
 Kasturi Chellaraja Wilson. Picture by Vipula Amerasinghe |
In her opinion, there are no right or wrong decisions. “If the Government has made a decision, then let’s make it work.
It should be a terminal where anyone who is operating it should be able to bring in efficiencies and to professionally manage it, by attracting the right customers. It doesn’t have to necessarily be an individual country which should run the terminal; but anybody who can bring business in or efficiencies and manage it.”
The bottleneck for any liner is that Sri Lanka’s capacity is not sufficient – that is the very reason that the East Terminal should come up soon – globally all the liners have moved into newer vessels which need deep water ports. We only have CICT to cater to that segment as of now.
Excerpts of the interview:
Maritime industry and Sri Lanka’s position
“Governments have recognized that Sri Lanka needs to be a Maritime hub in order to derive revenue and increase economic activities in the country to have economic growth. We are too small to be self-sufficient. As a foreign exchange earner, Maritime is important to us because of the positioning in terms of geographic location. Having said that, we should know that alone is not going to attract volume. Being a hub means having networks of mother ships and smaller feeder vessels. It has to be economically beneficial for a liner to use Sri Lanka to distribute its boxes out. The competition is from Singapore, Malaysia and now India.
We have identified our position. We have also opened up and allowed terminals to privatize. When the South Asia Gateway Terminals (SAGT) came in, we saw the efficiency and productivity. Then we saw Colombo International Container Terminals (CICT) coming in – with that we saw another level of efficiency. The efficiency level that they brought in made a positive impact on the entire industry, raising the bar for the rest. So immediately SAGT had to push its bar and Jaya Container Terminal (JCT) had to follow. Technically the Colombo Port had to elevate itself to a new level. In that sense, our position is now on a different footing as far as service and productivity are concerned, compared with India.
Mistakes
“Our mistakes lie with the Maritime policy - which got derailed because there were procurement and tendering issues over the past two years. Now we see a different traction. While there are debates about the Hambantota Port, we anticipate that the necessary strategic measures would be taken. The debate will always go on. But we await activity - that should be inclusive activity.
Hambantota has a labour force - people in the area need employment opportunities. The port development coupled with the industrial zone is a good strategy, because Hambantota is not an area where you can have a terminal alone and expect activity to happen. It has to be backed with industries. That’s how Malaysia worked, where you give attractive incentives and draw in industries. That way, they attracted global companies and convinced them to engage in manufacturing.
Unified plan
“I think if we - the Government together with the Private sector – actually work along with one unified plan by clearing out the bottlenecks, we should be able to grow volumes as a Maritime hub. The Port of Colombo already has three terminals and will be able to offer something similar to Singapore. We need to attract more customers to move business here. When we take these strategic decisions, irrespective of what happens in the political arena, the business can grow.
The Private sector has to work in conjunction with the Government, as their support and policies are of great importance. The Maritime law should be updated to support the growth plan of the Maritime policy. I think we now see that each part of the Government is working together in collaboration, including Customs. Progress over the last few months is therefore, considerable.”
India’s port development challenging
“India’s initiative to develop deep water ports is a challenge for Sri Lanka since 60 - 70% of our volume is Indian transshipment. If they have a couple of deep water ports, we could face a certain loss of volumes especially if India secures an anchor customer.
In this context, we need to look at recapturing lost business opportunities by improving our productivity and service levels. We need to create our own position through value addition. It’s therefore necessary for the Government to engage with the main customers and make sure that their business needs are looked after – and thus retain them. We need to make sure that we form the right alliances. Now, we have witnessed that the port is proactively doing it, which in turn will undoubtedly prove to be advantageous for the entire industry.”
Awaits Hambantota opportunities
“I look at it positively. Sri Lanka is in a similar condition to where China was, many years ago. When the US outsourced most of its industries to China, they had to impart the required knowledge for China to become industrial. So China soon adapted to and mastered the processes, businesses, managing of industries, and started manufacturing for the US.
Today, they are specialists in this field. So in their perspective, they will be able to move some of their manufacturing elements and expertise here. But they would also be looking at certain places where it will be low cost to market. Operating out of Hambantota is a business element.
If due to a trade agreement or the cost of land, operating out of Sri Lanka is cheaper to manufacture a particular product – then it would make sense. Take Singapore as an example.
They established good FTAs with key customers and countries. When adding value in Singapore, you get a huge rebate and that’s how Singapore’s GDP today is 50% value added transportation.”
“At this juncture, the Chinese stakeholders may be assessing the advantages of coming to Sri Lanka and making use of our trade agreements. From Sri Lanka’s point of view, there’s the Logistics element - employment and supply chain management. We are keen on seeing opportunities in Hambantota in terms of Logistics services.”
Opportunities in Hambantota
“One main business could be a ship repairing facility. The bunkering opportunity would be great too – since Hambantota is only a slight deviation from the main shipping line. Then in terms of the industry – we have substantial labour for manufacturing, but in terms of offering warehousing, storage, value added logistics, packing, re-export, and freight forwarding – we have to establish these services accordingly.”
Hemas’ growing container business
Meanwhile, the Hemas Logistics and Maritime Cluster is in the process of growing its container business as a business strategy. The company is a JV with GAC global. The Group last year bid for the Evergreen agency which was the third largest liner in Sri Lanka. “When the offer for bids was opened out, we submitted our bid too. Post-acquisition, we are working towards making Colombo a more rationale hub in terms of cost,” Wilson says referring to the business move. “Embarking on this journey, we also felt that it was important to position Sri Lanka as the preferred hub, revive lost trust and show the progress to our partners.”
Muthurajawela warehouse and container yard
The Logistics business has grown 20 to 30 percent a year. Hemas has started developing a modern Logistics park, warehousing facility and container yard in Muthurajawela in line with its partnership with McLarens Holdings, which represents global Logistics player GAC.
“Our specialty is domestic Logistics and via this partnership we are able to merge our strengths with their global expertise. In this manner, we offer solutions in collaboration. The facility, which is scheduled to open in March 2018, is at an investment of over two billion rupees,” she adds referring to the company’s growth plans.
Pharmaceutical industry
Hemas also entered into Myanmar’s Pharmaceutical distribution business recently, following a model similar to that of its operations in Sri Lanka. The business is a subsidiary of Hemas and the Myanmar operations is a joint venture with a local partner there. Hemas, Wilson says, is keen to look at other Pharmaceutical distribution opportunities in the region. “We are looking at other opportunities if we come across any model that fits into our policies.”
Tough time
However, in Sri Lanka, she says, the Pharmaceutical industry is going through a tough time. The factor she identified as a cause for concern is the current price controls system. “Last year, the price controls which were brought in were considered fair by the consumer – but price controls in the backdrop of exchange devaluation where we didn’t have any control creates challenging circumstances for the industry. We have to draw limits in terms of how much we could push back to our principles.
The rupee has devalued about 20 percent over the last couple of years – the consumers are benefiting only because of the price controls. In the current environment, with continuous exchange losses, the sustainability of all parties in the eco system from importers, distributors and retailers is questionable.
“This is also one reason as to why we ventured out to Myanmar. As a responsible company, we need to look after the interests of our stakeholders as well. We are committed to being a responsible importer or distributer. We canvas and manage to retail high quality drugs – at the correct price. But it is a tough act to make them stay on for long especially if price controls leads to continuous losses.
Ministry relief
The Health Minister has recently told the industry that he would bring in some relief to the Pharmaceutical industry, following an appeal made by the industry representative.
Therefore, we remain hopeful and in anticipation of some relief at this juncture from the Government. It is best if the stakeholders collaborate and bring in a proper pricing mechanism for the industry,” adds Wilson.