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Sri Lanka risks losing transshipment hub status, expert warns

28th June 2007

June 28 (LBO) Sri Lanka’s Colombo port risks losing its status as south Asia’s transshipment hub if it does not move fast to add more capacity and make trade more streamlined, a senior Asian Development Bank official said.

Although Colombo has a good reputation for reliability the country has not done enough to exploit its geographical position, Anthony Bayley, ADB consultant on trade facilitation and international logistics, said.

The country has a high level of expertise and education in freight forwarding and shipping although less so in trucking, he told the Sri Lanka Freight Forwarders’ Association’s 26th annual general meeting.

The challenge was how to make Colombo attractive as a logistics hub like Singapore and Dubai.

If not these two hubs could take away business from Colombo.

Already a high percentage of Colombo’s business was transhipment, the island has an efficient airport with carriers having enough underbelly space for cargo, Bayley said.

“It also has a beneficial geographical position and the planned new South Port will have 18 metre draft to take the biggest container ships."

However, Bayley warned, the island’s risks losing its gains because of inaction, lack of co-ordination and poor implementation of plans.

The transport infrastructure was woefully inadequate while the different ministries for air, sea and land transport were operating separately.

“Development plans are not integrated,” Bayley said. “There’s no master plan to combine requirements.”

Also there was fragmentation of service providers which resulted in limited potential to develop as a third party logistics hub.

“A few companies are doing good business in the domestic market but most lack the capability to go international because it would be a mega move.”

The South Port of Colombo has been talked about for seven years “and we have still not got it,” Bayley said.

Implementation takes a long time in Sri Lanka compared with its competitors like Singapore and Dubai.

Shipping industry experts have said that if Colombo loses its hub status, there would be adverse effects on the port and exporters and the island’s attractiveness for foreign investment.

For the first berth of the new deep draft South Port to be ready by 2009, in order to cater to surging volumes of cargo through Colombo, work must start this year.

Container volumes in Colombo increased by 26 percent in the first quarter of this year, more than three-quarters consisting of transshipment cargo.

Colombo handles 23 percent of the Indian sub-continent's transshipment volumes.

But an increasing number of shipping lines are making direct calls to Indian ports.

Furthermore, Far East cargo from the Indian sub-continent go through Singapore as it is a better located transshipment port. Likewise, much Indian cargo destined for the Middle East goes through the Omani port of Salalah.

Bayley also said Sri Lanka had constraints on foreign direct investment, which was not as smooth, fast and easy as in Singapore and Dubai.

“The big players, integrated third party logistics companies would want to control the whole of the logistics chain. They don't want little partners.”

He said there was a need for changes in FDI rules to attract big players.

He also called on the government and trade to simplify trade rules, especially Customs.

Now Customs treat entrepot trade as goods that are imported and exported. Although no duty is charged, such goods nevertheless must go through the “same hassle” of imports and exports, compared with hubs like Singapore where goods are cleared in 10 minutes, Bayley said.

Bayley also said the civil unrest had created a bad image for the country.

”Hopefully, this should not last and the industry must be ready when it is over.”

The country also suffered from a lack of vision, particularly at government level and also among people in the industry itself, he added.

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