In Sri Lanka, the main mode of transportation when it comes to trading is by sea. Thanks to the Covid-19 pandemic, local importers and exporters are currently bracing severe challenges with regard to the skyrocketing cost of shipping charges, accelerating inflation of raw materials, and shortage of containers, among other issues.
Addressing the global scenario, European Shippers’ Council Strategic Relations Manager Jordi Espin stated that due to the significant impact on inflation, vendors are faced with three choices: Halt trade, raise prices, or absorb the cost to pass it on later – all of which would effectively mean more expensive goods.
To understand the local scenario, this week took the opportunity to look at how Sri Lankan associations are addressing the situation and to discuss potential solutions that could be taken to minimise these challenges.
Sri Lanka Shippers’ Council
Sri Lanka Shippers’ Council (SLSC) Chairman Russell Juriansz optimistically that all current indications show that freight rates have stabilised and would gradually see a reduction in the high rates in the weeks to come.
Explaining the challenges, Juriansz said the export industry is presently facing difficulties such as meeting their deadlines for their export orders, obtaining their export proceeds into the country, and then converting their export earnings in a timely manner.
Along with that, exporters are also challenged when they are required to pay additional interest costs (due to delays in settling their credit loans) and additional storage costs (due to delays as warehouses are unable to store).
Meanwhile, the challenges faced by importers are that they are obligated to pay high freight rates, which results in high costs of imported items.
According to Juriansz, importers face delays in obtaining inputs for promptly executing export orders; however, for some urgent raw materials that have to be air-freighted to meet time-sensitive export orders, the foreign exchange earned by the country has now been reduced.
When inquired if measures are taken by the Council to curtail these obstacles, he mentioned that SLSC has engaged with the Merchant Shipping Secretariat and other stakeholders to have a maximum charge for delivery order fees charged according to Guideline No. 4 issued on 17 June 2021.
Commenting further, Juriansz stated that SLSC has been made aware that there are some unscrupulous forwarders who have ganged together to overcharge importers with additional charges, which in turn has a negative impact on the entire trade.
“The Merchant Shipping Secretariat is slow to take action against these unscrupulous forwarders, which is baffling the trade,” he added.
Sri Lanka Logistics and Freight Forwarders’ Association
Responding to an email query raised by us, Sri Lanka Logistics and Freight Forwarders’ Association (SLFFA) Secretary General Rohan Induruwa stated that apart from the negative impacts of frequently fluctuating US dollar exchange rate, the freight forwarders’ industry is also facing other challenges.
“Some medium and small-scale players may find it difficult to continue the business, especially due to the dollar shortage prevailing in the market right now,” Induruwa said.
Further, the industry is facing difficulties in not being able to keep up with the service commitments and price agreements with customers for a contract period, as certain levels of deviations are anticipated at any given time. According to Induruwa, what’s taking place now is “unprecedented”.
Another is the cash flow-related issue, which occurs from high levels of exposure and freight costs payable to the carriers. Likewise, delays in deliveries to customers also tend to affect the cash flow, especially in long haul sectors.
“General trade is impacted severely. We noticed some exporters have indefinitely postponed their shipments due to higher rates. In the imports sector, we are already seeing the impact where the end customers have to pay higher prices for certain commodities and (face) very frequent shortages of goods which are essential,” Induruwa explained.
Additionally, freight forwarders in Sri Lanka are intermediaries that do not own or control vessels or aircraft of their own; therefore, functional activities could be impacted as it has entirely depended on others who do so.
When inquired if SLFFA could take measures to curtail this prevailing price issue, Induruwa said that it is beyond their control, adding: “All we can do is to mitigate the impact by offering more choice of carriers, sea or air, and also making use of advanced bookings, which is working to some extent for air freight but is hardly the case for ocean freight.”
Lanka Fruit and Vegetable Producers, Processors, and Exporters’ Association
A representative of the Lanka Fruit and Vegetable Producers, Processors, and Exporters’ Association (LFVPPEA), who wished to remain anonymous, revealed that the unprecedented and escalating freight rates have made them “uncompetitive” in international markets.
Responding to an email query, the official explained that the industry has now reached the threshold where the buyers are opting to suspend orders until the rates come down. Accordingly, fresh fruit and vegetable buyers in the Middle East as well as processed produce buyers from the European Union (EU) and other markets are currently being driven away due to the price challenge.
“In the case of buyers who are still opting to continue even at such high ocean freight rates, the shortage of space on vessels, scheduled ships calling in Colombo being bypassed or called off, the shortage of equipment such as 40-foot containers have become a major setback in meeting the delivery/shipping schedules,” the representative emphasised.
When inquired if necessary measures were taken by the Association to curtail the ongoing issue, the representative stated that the Association “regrets” that they do not see any options available at the current moment other than hoping that the rates will come down, except some customers resorting to shifting to air freight on rare occasions.
Explaining the reason, the representative said: “Some customers/buyers have had the courtesy to bear part of the escalating freight costs with reduced and more competitive rates offered for the product that is exported, which was possible with the LKR depreciation, but now it has gone beyond anybody’s ability to accommodate and carry on with low crop, owing to shortages in fertiliser and uncompetitive rates in supplies.”
According to the representative, the industry is overall impacted by multiple issues arising out of freight rates, space crunch, shortage of equipment, dwindling crops owing to the fertiliser shortage, and all other connected issues owing to the Covid-19 pandemic.
Free Trade Zone Manufacturers’ Association
Free Trade Zone Manufacturers’ Association (FTZMA) Secretary General Dhammika Fernando said that the sea freight charges have skyrocketed and is currently tripled in comparison to what it was prior to Covid-19, thus having an adverse impact on importing and exporting in the trade required.
Addressing a pressing issue, Fernando mentioned that even though the Merchant Shipping Secretariat has gazetted a maximum charge, several liner agents and shipping agents are still not complying with the regulation, which results in a much higher cost than the actual rate.
“It’s happening internationally. There’s very little the Government can do other than making the system efficient. For instance, facilitating the rule of Sri Lankan Customs to be more cleared for exporters and importers to make their processes efficient,” he said.
Nevertheless, Fernando expressed that the Government could take measures to increase operations to the fullest capacity at all three international airports than just Bandaranaike International Airport (BIA), which could make trade more productive and faster.
Sri Lanka Association of Air Express Companies
Sri Lanka Association of Air Express Companies (SLAAEC) Past President Sanjeeva Abeygoonewardena stated that even though curtailing the current global situation is beyond its control, SLAAEC acts responsibly to keep the wheels turning, as the companies involved in the Association play a pivotal role in the supply chain processors.
“When demand exceeds, supply chain service providers are faced with multiple challenges to ensure they maintain their service levels to the best of their ability. Therefore, additional resources from many facets are required to clear backlogs and ensure speed to market capabilities are calibrated during uncertain times,” Abeygoonewardena said.
Speaking on addressing the challenges faced, he mentioned that securing a guaranteed space and congestion at key hubs is a challenging task given the existing demand. With reference to data, Abeygoonewardena mentioned that 50% of deliveries are facing delays globally upon reaching the final destination.
Giving concluding remarks, he mentioned that world trade is surging and the future for sea freight trade looks promising. “When the burden on supply chains is impacted, consumers will bear the brunt as a result of inconsistent costs in the supply chain. Almost all companies are stretched beyond their call of duty, and let’s hope the capacity will stabilise sooner or later,” he said.
Shippers’ Academy Colombo
Shippers’ Academy Colombo (SAC) Founder and CEO Rohan Masakorala, speaking to us recently, stated that shipping costs will continue to increase over the next 12-18 months until the market stabilises or new capacity additions are made to the container ship fleet.
Masakorala said that exporters are struggling to balance production with maintaining warehouse space, as export shipments are delayed by over 10-12 weeks, where importers are now required to manage inventories very carefully and may have to maintain large stocks in their inventories to ensure shipping delays do not impact the production process, which could give rise to short-term cash flow problems.
Further, he mentioned that due to price hikes and other factors, small-scale exporters who have not entered into long-term shipping contracts with shipping lines, along with exporters of low-value cargo, will be the most vulnerable to the current situation.
According to the Freightos Baltic Index (FBX): Global Container Freight Index, as of 24 September 2021, the cost of a standard 40-foot container stands at $ 10,839, which is a 382.4% year-over-year (YoY) increase compared to $ 2,247 recorded on 25 September 2020.
Speaking to us, a representative from the Ceylon Chamber of Commerce stated that right now, it is a supplier-dominated market for which Sri Lanka has no option but to wait until sanity prevails.
“Needless to say, we are greatly impacted due to this worldwide phenomenon of uncontrollable increases in freight charges due to different reasons. We have no means to control this as the rate hike made certain shipments unviable and discouraged imports and exports,” the official said.
Expressing concerns over the impact caused by the export and import industry, Ministry of Trade Secretary Bhadranie Jayawardhana told that trade has been severely affected in the country due to the shift in the normal demand and supply system.
According to her, the prices will, hopefully, be back to normal for traders to operate without any barriers, not just in Sri Lanka but globally.
Unfortunately, attempts to reach the Ministry of Ports and Shipping, the Sri Lanka Port Authority (SLPA), and the Ceylon Coir Fibre Exporters’ Association (CCFEA) proved futile.