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Friday February 23rd, 2024

Sri Lanka exporters, importers battle high rates, box shortfalls to maintain trade lifeline

ECONOMYNEXT – Sri Lanka’s exporters and importers are working against multiple global and domestic logistics disruptions in the post-Covid-19 period to keep exports ticking and supply the country with essential foods and raw material as freight rates soar.

Exporters are also facing shortfalls of containers with import controls in Sri Lanka, compounding global bottlenecks in shuttling empty containers.

Though freight rates have started to stabilize gradually from Covid-19 peaks, Sri Lankan shippers are paying high rates and battling capacity bottlenecks.

Perfect Storm

Freight rates from Colombo to Europe, China and Hong Kong have jumped over 200 per cent, to the US over 150 per cent and to Singapore over 100 per cent, Sri Lanka’s Shipper Council Chairman Suren Abeysekera said.

Freight rates were competitive before the Covid-19 pandemic, helped by large container ships coming into service, but pandemic disruptions rapidly pushed up rates as ships were taken off service reducing capacity.

The Shanghai Freight Index has jumped three-fold compared to 2019 last quarter while the Drewry’s World Container Freight Index also shows a threefold jump from 2019 with the average spot freight rate jumping from 1500 dollars in March 2019 to 4800 dollar by March 2021, Abeysekera said.

“In my 21-plus year experience I have never seen something like this before,” Abeysekera said calling it a ‘perfect storm’ in ocean freight.

The resurgence of economic activities after Covid lockdowns ended, and the rush to build up stocks had created congestion in the global logistics system.

Shipping companies were making large profits and orders have also been placed at shipbuilders.

“Whatever that stopped during COVID, couldn’t come back to its former glory even though the industry came back quickly to match the consumer demand,” Abeysekera explained.

Costly Delays

Across the logistics chain, there are delays and congestion, which is a cost to shippers.

“Congestions created at ports amplify this issue with ships spending more time close to ports rather than moving cargo on water,” Abeysekera said.

While global trade has not actually grown, it is the disruptions and delays that are causing capacity problems, he said.

“Remember the number of ships in the world has not suddenly increased but most are out of schedule creating havoc to demand when it needs supply.”

“It is our understanding that the current volatility in the ocean freight market would continue throughout 2021 and shippers in the country should adapt to the new norm in containerized shipping,” he said.

The industry has taken a number of initiatives to mitigate the situation; more innovations are being underway, but there are also measures that authorities can take, he said.

Box Shortfall

Overall ships are fuller than before, reducing the ability of shuttles to be emptied.

Globally there were difficulties in getting hold of empty containers and also specific types such as food-grade boxes, refrigerated containers and different sizes such as 40-foot containers and 20-foot containers.

Vessels delaying their return to Asia due to congestion in export destinations had also contributed to a shortfall of containers in Asia. Others have also got stuck in inland ports.

There is at least one investigation by regulators to probe whether an artificial shortage is created, he said.

In Sri Lanka exporters are facing difficulties getting empty containers in general and specific types of containers.

Sri Lanka’s import controls had created shortfalls of empty containers, whereas, in the past, there was an excess of boxes on the island.

“Specifically for Sri Lanka, the reduction of imports has had a direct impact on container availability,” Abeysekera said.

“Generally, Sri Lanka has an imbalance in the number of containers with more inflow than outflow. But currently, it is reversed.”

Due to import imbalance, the 20’ equivalent size containers have a better availability compared to 40’ and 45’ containers in Sri Lanka.

But the overall export cost of two 20 foot containers instead of a 40 foot container was not the same.

Shippers Innovating

Shippers are taking several measures on their own to mitigate the fallout and maintain the external trade lifelines of the country.

Forecasting volumes to shipping lines and maintaining accuracy is one way to make sure shipments can be made on time.

“Currently, the earlier you could forecast the lines, the better chance for exporters/ importers to obtain space on vessels,” Abeysekera said.

“Presently, forecasting is done as early as and when found weeks ahead by some users. This helps with rates as well.”

The creation of a common container pool without having to look for containers in specific yards would also help, he said.

It is not clear whether an online data-base could be set up for container freight stations to update data daily.

Official Measures

State authorities could also take measures that would help combat the problem.

Sri Lanka has lost a number of ocean services during the congestion that happened during a Covid-19 spike at Colombo Port last year.

Though many lines have returned some are still bypassing Colombo.

“Sri Lanka should market its Colombo port internationally as a port which successfully combats Covid and attract vessels back to its shores which will increase capacity for local importers and exporters,” Abeysekera said.

Attracting new lines to Colombo would also help.

Sri Lanka can also invite shipping lines to use Colombo as their hub in Asia, he said.

Additional ships calling in Colombo will give more business to shipping agents and other service providers including husbandry and ship services.

Sri Lanka however has placed controls on foreign ownership of shipping agencies, which some say has prevented the island from following on the path of Singapore where regional offices are set up.

Fast-tracking clearances by border agencies would also help, he said.

Sri Lanka can also relook at import controls, he said. Ad hoc changes are creating ripples and uncertainties in the market.

While the cost of shipping had hit record levels, shippers have to put up with very high service charges from middlemen such as freight forwarders, consolidators.

He says such gauging is unethical given the current context.

What shippers are doing and what Shippers’ Council says can be done to further mitigate the crisis

1. A quick solution to the problem we see from the shippers’ side, is properly forecasting volumes to shipping lines and maintaining the accuracy of these projections. Currently, the earlier you could forecast the lines, the better chance for exporters/ importers to obtain space on vessels. Presently forecasting is done as early as 4 weeks ahead by some users. This helps with rates as well.

2. Another opportunity available for shippers is getting into strategic contracts with SSLs with volume/rate commitments from both sides. Current spot rate markets are bullish and most of the time-space not awarded or containers rolled at transhipment points due to yield restrictions.

3. Shipping lines are also encouraging renewing of annual contracts prematurely giving the opportunity to secure rates and capacity at current levels in case the situation develops further and also to have confirmed space in the current context.

4. Importers and exporters should relook at their entire supply chain/ value chain activities and not in EXIM trade in isolation to attract transportation cost benefits in this challenging period

5. Another new option has emerged from shipping lines deploying smaller vessels to ply between specific port pairs which help to speed up transit between key economies and cut down congestion having to carry, load/ unload and experience congestion calling many ports on the way. This is at a premium rate but provides consistency and dependability to freight transportation thus relieve pressure on main ocean line hauls.

6. Availability of a common container pool in Sri Lanka without having to look for containers in specific yards would also help to quickly track and issue containers to exporters from a central repository.

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Sri Lankans may need to wait for Monetary Board meeting minutes despite new Act

ECONOMYNEXT – Sri Lankans may have to wait more time to read the meeting minutes of the Central Bank’s Monetary Board, a top official said, despite a new act that has made the central bank to be more transparent and accountable for its decisions.

Many central banks including the United States’ Federal Reserve, India’s Reserve Bank, and Bank of Mexico release the minutes of their monetary policy meeting to ensure transparency.

The new Central Bank Act passed by the Parliament in line with the guidance by the International Monetary Fund (IMF) includes measures for Sri Lanka’s central bank to be more transparent and accountable.

These measures include releasing the Monetary Policy Report every six months and the first such report was released on February 15.

However, the central bank has not taken a decision to release the minutes of the Monetary Board meetings on the monetary policy.

“Going forward, one day this could happen,” Chandranath Amarasekara, Assistant Governor at the Central Bank told reporters on Wednesday (21) at a media briefing.

“Right now, we have just started working on the new Central Bank Act. We are not there yet. There is no such decision on releasing minutes yet.”

The central bank in the past printed billions of rupees to keep the market interest rates artificially low and provide cheap funding for successive governments to propel a debt-driven economy.

It’s decision, however, led Sri Lanka into an unprecedented economic crisis in 2022 with sovereign debt default.

It also propped up the rupee currency artificially in the past to maintain a stable exchange rate at the expense of billions of US dollars. The move also contributed for the economic crisis and later the central bank was forced to allow over 60 percent depreciation in the rupee in March 2022.

However, none of the top central bank officials was held responsible for wrong decisions to hold interest rates artificially low with money printing and propping up the rupee. (Colombo/Feb 23/2024)

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Amid mass migration, Sri Lanka to recruit volunteers as English teachers

ECONOMYNEXT- Sri Lanka is planning to appoint foreign and expatriate volunteers to teach English for Sri Lanka students, the Ministry of Higher Education said, amid thousand of teachers migrating to other countries after the island nation’s unprecedented economic crisis.

Over five thousand teachers have left the country with the Education Ministry permission using the government’s circular of temporarily leaving state jobs while tens of thousands of teachers have left the country without informing the relevant authorities, Education Ministry officials say.

That had led to an acute teacher shortage in the country.

Suren Raghavan, the State Minister for Higher Education said the shortage has aggravated because most of the graduates who have an English degree become writers and join the private sector due to higher salary.

“They do not join government schools. This is a problem all over the country which is why we need to have an online system,” Raghavan told EconomyNext.

Separately he said on Thursday at a press conference that he had spoken to Canadian and Australian High Commissions to get the assistance of where their English teachers who have experience in teaching English as a second language in South Asia.

He also said that there is a number of teachers in the Unite Kingdom have shown interest in teaching English and they have experience in teaching in other Asian countries such as Burma and India while the teaching would be done free of charge.

The new move also comes at a time when the country’s English literacy rate is on the decline, according to the Minister.

President Ranil Wickramasinghe announced the English-for-all initiative three months ago with plans to improve English literacy at school and university level. (Colombo/Feb 23/2024)

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Sri Lanka tea production up 1.4-pct in Jan 2024, exports up 6.8-pct

ECONOMYNEXT – Sri Lanka’s tea production was up 1.4 percent to 18.73 million kilograms in January 2024, with high growns falling and low and mid growns rising, industry data shows.

High grown tea in January 2024 was 3.56 million kilograms, down from 3.36 million, medium growns were 2.6, up from 2.5 million kilograms and low growns were 12.56 million, up from 12.32 million kilograms last year.

Exports, including re-exports were up 6.88 percent to 18.76 million kilograms, industry data published by Ceylon Tea Brokers show.

Export earnings were reported at 102 million US dollars, up from 99.5 million dollars last year. The average FOB price was 5.45 US dollars a kilo down from 5.67 dollars last year.

Tea in bulk was 8.5 million kilograms valued at 12.79 billion rupees, tea in packets was 7.8 million kilograms valued at 13.1 billion rupees and tea in bags was 1.8 million kilos, valued at 5.06 billion rupees.

The top buyer was Iraq with 2.5 million kilos, up from 2.1 million last year followed by the UAE with 1.99 kilos, up from 1.86 million last year.

Russia bought 1.98 million kilos, down from 2.0 last year, Turkey bought 1.72 million kilos, from 2.3 million last year, while Iran bought 1.32 million, up from 614 million last year. (Colombo/Feb23/2024)

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