Sri Lanka may be heading for port ‘capacity trap’

ECONOMYNEXT – Sri Lanka’s expanded port capacity and plans ahead may be ahead of demand in for the foreseeable future as global shipping trends are going through a sea change, an industry official said.

Parakrama Dissanayake, who heads Aiken Spence Shipping said Sri Lanka was building capacity at a time when global shipping was going through a downturn.

At the moment, freight charges were under pressure, and changing economic and technological trends could also undermine Asia current position as the manufacturing hub of the world.

Colombo’s older state-run Jaye and Unity container terminals (JCT/UCT) had a throughput of 3.2 million twenty foot equivalent units (TEUs), and the private South Asia Gateway Terminals (SAGT) 2.8 million.

The newly built Chinese owned Colombo International Container Terminal, on the expanded port could handle 2.8 million boxes a year. 

The other two terminals that could be built in the expanded port could handle up to 2.8 million each and there was the possibility of a fourth 2.8 million box terminal totalling up to 8.4 million boxes.

In this backdrop the plans for a container terminal in Hambantota Port could add 3.5 million TEUs, which capacity was being boosted in Colombo. Sri Lanka now had a designed and planned capacity of 16.4 million TEUs.

"Are we walking into a capacity trap?," Dissanayake said. "When you have surplus it destroys existing and planned capacity."

He said in Spain a ghost airport which was built at a cost of one billion dollars in a boom period, was ultimately sold for 10,000 Euros in a bankruptcy auction.

Dissanayake said the additional outlays by state-run Sri Lanka Ports Authority which could run up to a billion dollars may not generate sufficient financial returns if traffic does not grow fast enough.

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Dissanayake said this year Colombo’s throughput is expected to grow to only 5.1 million TEUs from 4.9 million a year earlier.

This year, India’s export import trade has collapsed amid an economic downturn, has hit Sri Lanka’s transhipment volume.  However India’s economy will eventually recover.

There were also questions whether the current trend where countries like China was a manufacturing hub, which was supplying Europe and the US may change as labour costs rise with falling unemployment in the region.

Dissanayake said there were already cases where some firms were closing plants in Asia and moving to Eastern Europe and Turkey (near-shoring), which reduces the demand for long distance trade. Some firms were moving back to their home countries like the USA (re-shoring).

In addition, new technologies like 3-D printing could also transform manufacturing ending the dependence on lower wage labour and making it possible to mass-produce goods at home. (Colombo/Sept28/2015)
 

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