Charting a new course for Sri Lanka’s shipping sector

ICS (UK) Sri Lanka Branch Secretary Anoma Ranasinghe, International Institute of Chartered Shipbrokers Vice President Bruce Ogilvy, Finance Minister Ravi Karunanayake, ICS (UK) Sri Lanka Branch Chairman Lalith Witanachchi, Public Administration, Democratic Rule and Buddha Sasana Minister Karu Jayasuriya and Policy Planning and Economic Affairs Deputy Minister Dr. Harsha de Silva at the head table

By Channa Fernandopulle
The course of the country’s shipping industry was the subject of much discussion at the 21st Annual Awards Ceremony of the Institute of Chartered Shipbrokers Sri Lanka (ICS).
In attendance at the event were prominent members of Government, including Minister of Finance Ravi Karunanayake, shipping industry veteran and Minister of State, Public Administration and Buddha Sasana Karu Jayasuriya and keynote speaker for the evening, Policy Planning and Economic Affairs Deputy Minister Dr. Harsha de Silva.

Lack of skilled human resources, dedicated ministry
Proceedings commenced with a welcome address from ICS Sri Lanka branch Chairman Lalith Witanachchi. Acknowledging some of the major developments that had taken place in the country’s maritime sector over the recent past, such as the successful expansion of the Colombo Port and the construction of the Hambantota Port, he noted that a lack of skilled human resources continued to be a major challenge for the industry.
“Ultimately it is people who make or break an industry; therefore it is very important to ensure that the right people enter the shipping industry in order to ensure that the business is managed efficiently. In order for our industry and the economy as a whole to prosper, it is therefore crucial that the right climate for our industry is created,” Witanachchi stated.
Noting the absence of a dedicated ministry for the shipping sector, which currently falls under the purview of the Ministry for Highways and Ports, Witanachchi noted that the status quo had resulted in many of the issues facing his industry receiving inadequate attention.
“The shipping industry is the engine that powers world trade but unfortunately with this sector it is often a case of ‘out of sight, out of mind’ and this attitude could spell disaster if administrators and regulators continue to ignore some of the serious issues developing within the industry,” he cautioned.
In that context, Witanachchi pledged to extend his organisation’s fullest support in consulting with the Government in order to develop an effective mechanism that would help mitigate future challenges facing the industry.

 
Key concerns
Subsequently, Minister Karu Jayasuriya took to the podium to briefly outline some of his key concerns for the shipping industry including the potential impact of 3D printing technology on manufacturing hubs in Asia and its knock-on effect to shipping, revitalisation of the National Merchant Fleet, potential tie-ups between local and global port operators and the adverse impact of corruption on the shipping sector.
Citing a 7% dip in container traffic in January 2015, on the back of flat volumes over the previous year, Jayasuriya suggested that the concept of partnerships with global port operators be explored.
“Global shipping lines tend to prefer working with global port operators and the increasing throughput at the new terminal of the Colombo port is a testament to this fact. Should not the SLPA look to partnering with a global terminal operator in the provisioning of these services in future?” he queried.
Commenting on the status of the National Merchant Fleet, Jayasuriya repeated calls for its revitalisation as a necessary perquisite to improving profitability at the Ceylon Shipping Corporation.
“As I have stated many times before at this gathering, we need to revive and revitalise our National Merchant Fleet. I’ve always maintained that when you live on an island, you will always need a boat. Unfortunately today we have a Ceylon Shipping Corporation which has no ships. Without this and the technical know-how it will be difficult to improve profit making capacity in the public sector.”
Touching on the subject of corruption, Jayasuriya cited United Nations reports which found that approximately $ 1 billion is paid in bribes while an estimated $2.6 trillion is stolen through corruption on an annual basis globally.
“This is clearly a serious challenge for all industries. There are many areas in which corruption takes place in shipping which includes building of port capacity, purchase of vehicles and allocation of bunkering facilities and this is an issue which must be addressed,” he observed.
He went on to state the maritime industry should also take cognisance of the development of low-cost manufacturing in the form of 3D printing which some reports estimate will eventually result in a 41% decrease in air freight and a 37% decrease in container shipments.

 
International perceptions
Meanwhile, commenting on international perceptions of the shipping industry, International Institute of Chartered Shipbrokers Vice President Bruce Ogilvy drew a light-hearted comparison with the famous Clint Eastwood film, the Good, the Bad and the Ugly.
“Starting at the end, shipping can be an ugly business. We need only look at some of the most infamous disasters of recent times like the Exxon Valdez or the Atlantic Empress and it’s not just oil tankers but also container ships that meet with these sort of accidents.
“That lack of professionalism leads us to the ‘bad’, which is to say that those people give the rest of us in the industry a bad name and leave us with a reputation of being irresponsible. Our accusers vary from the US Coast Guard to regulators, stakeholders and of course the media. The industry as a whole has also been facing some very tough conditions as a result of terrorism and piracy which is estimated to cost between $4-6 billion each year,” he observed.

Nevertheless, Ogilvy ended on a positive note in the shape of the continued progress of ICS globally, which saw 2,600 students across 115 examination centres around the world in the last year.
“With ICS there has definitely been a lot of the ‘good’. It’s a complex task but last year we had new people joining our membership from places like Mogadishu and Baku, to many other cities across the United Kingdom, Australia and Canada and we hope that over time we can really build up the Sri Lanka branch as well,” he enthused.

 
Logistics hub
Delivering the keynote at the event, Deputy Minister Dr. Harsha De Silva urged the shipping industry to work with his Government in order to boost Sri Lanka’s exports to GDP ratio and convert the country into a true logistics hub.
“We have a very simple plan for Sri Lanka and that is to create a highly competitive social market economy and in that highly competitive structure, your industry will have a crucial role to play. Sri Lanka used to export 35% of its GDP 10 years ago but today that share has decreased to just 15%. In contrast Hong Kong exports 300% of GDP and Singapore exports 250% and it is that example that we must follow if we are to not only reverse the decline in exports.
“If Sri Lanka’s exports are going to be at 100% of GDP then we will have to import 80% of GDP but that will not be for domestic consumption. What I’m saying is that we need to import, add value and then export – a logistics hub – and this is a business for people in your industry. This is something that our Government intends to pursue strongly because if you want to create a hub in this country, the only way to do it is to grow your business. Therefore I believe that the future is bright, just make sure that we’re back in office after the next election,” he quipped.

Elaborating on his Government’s wider economic policy, De Silva expressed disappointment at the trajectory of Sri Lanka’s economy over the past 10 years relative to average household incomes.
“While it is true that some of you have made a lot of money over the last few years, it is also true that many of our brothers and sisters have not. While the economy has been growing with a GDP of 7% annually, average household income has been only been growing 0.5%.
“Now if household income for some has been growing at 100%, 200%, and even 300% – and you know that there are people who have enjoyed this kind of growth – then you will also realise that there are others who suffered negative growth in their household income. That is the wrong way and we must fix this situation,” he stated.

 
Overhaul in shipping, ports and aviation
Following on sentiments expressed by Dr. De Silva, Finance Minister Ravi Karunanayake too reiterated the need for a complete overhaul of the shipping sector, in addition to the aviation and ports sectors in order to ensure future competitiveness.
“Competitiveness in both the shipping and aviation sectors has been on the decline in this country and we are still going through some very turbulent times. Some of the issues in these industries were of our own making and others were well beyond our control,” Karunanayake said.
“The most important thing is to rectify the problems we inherited to the best of our ability by establishing a new approach to governing the country and ensuring that this concept percolates down to all industries. Being an island nation however, we also wish to place special emphasis on the shipping industry,” the Finance Minister added.

Citing the example put forward by the late Lalith Athulathmudali, Karunanayake argued that Sri Lanka’s economy must gear itself towards an intensely export oriented structure, a transformation which the island’s shipping industry will play a pivotal role.
“It is clear that we must export or perish. I am happy to follow and build on the legacy of my late political guru, Lalith Athulathmudali who did a lot of work in the shipping industry. His concept was to manufacture and export rather than import and trade. The former is fast losing its competitive edge. We must reinvent ourselves and diversify our economy,” Karunanayake asserted.
Commenting on the progress of initiatives to make the Sri Lanka Customs Department operate 24 hours a day, Karunanayake reiterated that the new operational schedule – which was implemented to facilitate and expedite exports and imports – was proceeding as announced and expressed frustration at the levels of scepticism he had met with during the process.
“When I met representatives of the shipping industry and mentioned that ports and customs will be working on a 24-hour basis I was still being asked questions if this process was going ahead. I was horrified that some in the private sector still want to know if we’re doing what we say when it was established that by 1 March we will be switching over to a 24-hour operation.
“The questions were so puerile that I was surprised that our stakeholders held such distrust in the Government and I can only conclude that this was a result of the climate that prevailed over the last 11 years and I suppose this was a pathetic situation where the private sector and its stakeholders didn’t have any confidence in the Government they were working with,” Karunanayake fumed.
He added that State banks such as the Bank of Ceylon and People’s Bank would also be proceeding with this initiative regardless of cooperation of private banks.

 
Performance of national carriers
Meanwhile, touching on the performance of national carriers, SriLankan Airlines and Mihin Air, Karunanayake railed against the staggering losses recorded by both airlines and their impact on State coffers and warned that while all parties responsible for the mismanagement of the two State-Owned Enterprises had not yet been brought to book, his Government would ensure that speedy action would be taken in the near future.
“Look at SriLankan Airlines, the last reported profits was a Rs. 32 billion loss and over the last five years they have lost over Rs. 122 billion. How on earth can a national carrier afford to lose so much? Can this little country afford it? And what about Mihin Air? They’ve spent Rs. 8.5 million and lost Rs. 11.5 million. What on earth is this? Even with the most incompetent staff you still can’t lose this much and I’m sad to see that some of the people responsible for creating this situation are still involved.
“We must get this corrected as soon as possible otherwise the confidence factor that is there on the good governance concept will erode and we will find it hard to bring it back. We are set to amalgamate this [SriLankan Airlines and Mihin] and move forward and I hope it happens sooner than later.”
In that context, he noted that a potential route to profitability could be found my reorienting the aviation sector to act as a gateway to India, instead of spreading its meagre resources thin by attempting to establish a presence in several countries at the cost of tax-payer money.

Handling of ports sector
Returning to the maritime sector, Karunanayake slammed the previous regime’s handling of ports sector and the Sri Lanka Ports Authority (SLPA) in particular.
“Losses in the shipping industry are also humongous. The competitiveness in our ports authority is being lost day by day. Accounting standards adopted there were absolutely unique to the Ports Authority itself,” he alleged.
Given the competition Sri Lanka faces from Singapore in the East and Oman, UAE’s Fujairah Port and South Africa, Karunanayake stated that it was imperative that steps be taken to revamp Sri Lanka’s ports in order regain profitability within the ports sector.
“It’s high time that the shipping industry wakes to the call. You don’t need to have wheels within wheels at the Ports Authority. The people in the past did lots of uncertain things that put our economy into jeopardy and those culprits need to be sniffed out but we have to put the past behind us.
“As a Government that campaigned on a platform of good governance we cannot hide behind past sins and neglect to create a new future and that is where we call on you captains of industry to come forward and work with us. We have just one condition: Come clean! We will not just reduce corruption but we will eliminate it together,” he advised.

 
Magampura Mahinda Rajapaksa Port
Extending his criticism to the construction of the Hambantota port, he acknowledged that the lacklustre performance of the Magampura Mahinda Rajapaksa Port would continue to be heavy burden on the SLPA.
Construction of the port initially cost Rs. 68 billion, while an additional Rs. 20 billion was spent to clear rock formations at the mouth of the port. Debt servicing on the loan amounts to a further Rs. 5.8 billion however the port only managed to generate revenue of Rs. 230 million, inclusive of bunkering operations.
According to Karunanayake, a further Rs. 110 billion had already been budgeted for the next phase of the port with 60% of that sum having already spent when his Government came into power on 9 January 2015.
“This is why I have said in the past that we are compelled to take certain decisions when investing in the shipping and aviation industry simply for the fact that the committed costs are already there. We can’t now say ‘the port is there and it’s useless so let’s forget about it’. Instead let us make the best use out of the worst case that we have,” he urged.

 
Opportunities
Karunanayake noted that opportunities for the shipping sector would also improve as India and China continue to grow into regional manufacturing powerhouses while in the aviation field, talks had already been initiated with Airbus and Lufthansa.
“We’re going to invest in the industries that we do have and shipping is one of the most lucrative industries in the country so let’s take it forward. Ensure that India, that has become a production base, uses little Sri Lanka as an exporting point. It is such irony that today Chinese come to Sri Lanka and take ownership of Sri Lankan ports and then we export Indian goods through those ports. What a ridiculous situation it is!
“The good news is that you’re in safe hands. You have a situation where you can reconstruct the economy so I call upon your society to come forward and work with us. You don’t need contacts within the government to get your business to move forward, you don’t need to worry about start-up costs, your motivation is the only qualification you need to do business in Sri Lanka,” he concluded.