Interview: Kasturi Chellaraja
What role can strategic foreign partners play in fulfilling Sri Lanka’s maritime aspirations?
KASTURI CHELLARAJA: Sri Lanka’s vision is to become a global logistics and maritime hub, and we’ve been on the journey to become one since the olden days. Having an advantageous location is essential, but not enough – the country needs to add infrastructure developments and service industry growth, as well as the trade agreements and policy to back it.
Sri Lanka needs to position itself as a hub for global manufacturers whose shipments go through our ports. A hub in terms of just-in-time distribution, value addition and consolidation, and service support. For this to happen, we need to align our ports, airports and overall national infrastructure and technology according to regulatory policies that can attract global industries. We must gear up for the plethora of activities that need to be done to become a logistics and trade hub.
At the moment, we lack the experience and regulatory policies to attract strategic partners. The country also needs to streamline its processes and increase the adaptation of technology.
Establishing policies that encourage foreign investment is essential to attracting trade agreements with overseas partners. When establishing foreign partnerships, we have to properly position ourselves to claim a competitive advantage. For instance, it would be great if we could encourage a company that operates in Singapore to move its value-addition process to Sri Lanka. We also need to attract the right kind of partners. We need to invite global brands to set up plants here, to capitalise on our relatively cheap labour and infrastructure costs.
The benefits of foreign partnerships in any form are substantial and contribute to the positive economic development of the country. Furthermore, when we start servicing the region, our technological competencies and labour expertise will improve.
How is regional stability and a challenging economic outlook impacting shipping costs?
CHELLARAJA: The challenging economic outlook is a symptom of global supply and demand in trade, which determines the volume of goods and services being transacted across the world. Currently, due to various macro factors, there is global economic instability, which has lowered trade volumes. This situation, coupled with the fact that most liners are overcapacity, does not paint a pretty picture: revenue lines are declining at increasing rates, while operating costs for shipping are rising.
To survive this crisis, liners are having to adopt drastic approaches, including getting into alliances, which is a healthy response. Less attractive options include cutting rates, laying off some ships for a while or, worst of all, closing down entirely.
Regional instability is not too much of a concern for Sri Lanka, since intraregional trade is sufficient to keep us afloat. So as long as we maintain our competitiveness, we should not have too many issues in the short run. However, our long-term survival is dependent on the fortunes of global liners, and this is a concern, especially if global instability prevails.
To what extent is the proliferation of rail freight in China putting downward pressure on shipping rates in South Asia?
CHELLARAJA: China is exploiting rail freight excessively, but I do not see this as a big threat for shipping rates in the short term due to cross-border movement and competitive costs. However, in the long run rail freight will start tackling the bottlenecks faced in maritime cargo operations, such as longer lead times and high costs. With China actively pushing trade through many avenues, the role of rail will grow. While rail freight might be cheaper, it requires a substantial capital investment. We still are not sure whether the investment will prove worthwhile.
Read More from OBG
