On the move: A new trans-shipment facility, road network improvements and Customs reforms look set to give the sector a boost


A large part of the Sri Lankan logistics sector is given over to the trans-shipment business. As a leading centre for goods ultimately bound for India and other South Asian markets, along with East Africa, Asia and the Gulf, the country’s ports and airports provide important stops for repackaging, warehousing, redistributing and palletising a huge range of goods.

The country is also rapidly developing its e-commerce segment, as the logistics of the internet poses a new challenge for an old and established industry. Meanwhile, as the island nation’s road network evolves, the logistics of the domestic market are also improving. Nonetheless, last-mile issues remain, not least of which is a shortage of cold storage and other facilities beyond the metropolitan area. The years ahead, however, will likely see significant shifts in all these areas.

Moving Goods

Freight forwarding has long been a mainstay of the sector, with the country’s apparel and tea industries the principle domestic bulk shippers. In addition, a wide variety of goods of international origin are trans-shipped through Sri Lanka’s logistics outfits.

Although much of this is sea trade, companies such as Expolanka have developed on the airfreight side in particular, receiving apparel from branded manufacturers overseas, then warehousing, breaking down and palletising these goods before forwarding the results to regional and international markets. Shantanu Nagpal, director of Expolanka’s Strategic Planning and Business Development department, told OBG, “We are now in 20 countries, with approximately 70% of our business coming from outside Sri Lanka.”

Storage Facilities

Warehousing is therefore an important area for this trade, with Expolanka operating a well-developed facility, while other third-party logistics outfits, such as Aramex and Hayleys, offer multi-user warehouses and distribution facilities. Elsewhere, however, warehousing has room for improvement, as does trucking, with investment in up-to-date facilities often lacking beyond the Colombo District.

On this score, January 2017 saw the unveiling of plans for a new logistics facility at the Muthurajawela Industrial Zone, north of Colombo. A joint venture between GAC Group Sri Lanka and Hemas Logistics, the facility will have a distribution centre, container yard and six-ha warehouse facility housed on the site. This will be the first phase of a new Logistics City that is being planned by the Ministry of Megapolis and Western Development, and is expected to be partly operational by August 2017, with the distribution centre coming on-line in March 2018. The container terminal will have a capacity of 6000 twenty-foot equivalent units, with seven-high container stacking, accessed by the latest reach stackers and organised by an IT system. It will also feature Sri Lanka’s first two-way stack approach and dual in-and-out gates. The facility will serve both local and international markets, according to statements in the press by Niranjan Nallaratnam, CEO of this new joint venture between Hemas and GAC.

Rising Competition

Meanwhile, with global tea prices falling and competition among the world’s apparel producers growing, Sri Lanka’s producers of these two traditional staples are facing some challenging times, which could have consequences for the logistics businesses handling their goods. However, although these goods may become less prominent, production is not likely to stall completely. Samath Gammampila, country manager of Aramex, told OBG, “Tea and apparel are not going to disappear, they will just become less significant overall to the sector.” Instead, Sri Lanka’s future domestic logistics business is likely to see a shift from bulk to quality in the years ahead. High-value items targeted at European, North American and Australian markets, such as ayurvedic oils and craft textile and ceramic products, are taking more of a share, with these typically produced by smaller companies with higher value added. Meanwhile, e-commerce is beginning to pick up in Sri Lanka, and its growth in neighbouring India is giving the local logistics sector increasing business. Once again, Sri Lanka is able to leverage its strategic location, free trade agreement with India and existing high-quality shipping links to trans-ship e-commerce goods to the rest of the subcontinent.


The domestic e-commerce market is also growing. The mobile phone penetration rate is at 115%, enabling far greater internet access. A growing middle class with wider credit card ownership and cash-on-delivery options are also bolstering the sector. In 2016 the payment volume on Visa credit cards and Visa debit cards increased by 23% and 21%, respectively, while there was a 61% increase in e-commerce transactions, according to data from VisaNet. The same year saw 300,000 new internet subscriptions, bringing Sri Lanka’s internet penetration rate to 6m, or 30%. A lack of hard retail infrastructure in many areas, even in the capital, where there is just 400,000 sq metres of grade-A retail space, also adds to the potential for online shopping. However, this segment faces a substantial logistics challenges. Transport infrastructure in Sri Lanka beyond the larger urban areas is often poor and congested, although this is gradually improving. Out of 12,210 km of highways, some 7900 km has been rehabilitated as of April 2017, with another 4300 km scheduled to be upgraded under government road improvement schemes. One other short-term solution is to decentralise services, storing popular items locally.

At The Border

Another major challenge for the sector is Customs. There are currently a large number of different duty rates for goods, and some logistics stakeholders are of the opinion that the paperwork is extensive. This introduces delays and uncertainties that are costly for businesses. This is reflected in the World Bank’s “Doing Business 2017” report, which downgraded Sri Lanka’s ranking in the trading across borders category from 89 to 90 compared to 2016.

Sri Lanka is, however, a signatory to the World Trade Organisation Trade Facilitation Agreement (TFA), which came into force in the country in February 2017. This obliges Colombo to implement a string of reforms to Customs practices, with more than 36 different measures listed. These concern areas such as transparency, rules and procedures, the fairness and consistency of border authority decisions, streamlining of clearance procedures, and a reduction of administrative constraints on imports, exports and transit goods. Hanif Yusoof, group CEO of Expolanka, spoke to OBG about the importance of lowering trade barriers in the country. “Sri Lanka must embrace free trade in order to link into strategic global value chains,” he said.

The reforms are to be implemented by the National Trade Facilitation Committee in 2017. The benefits are likely to be significant, with World Economic Forum studies suggesting small and medium-sized enterprises in particular could boost their cross-border sales by 60-80% globally if the TFA is successfully implemented. As such, the year ahead may see some changes, benefitting both the logistics sector and the overall economy.