Port of Colombo running out of capacity, urgent measures needed to fix it by 2019: Maersk Line
Giving an interview to The Island Financial Review, Steve M. Felder, Managing Director- Maersk Line South Asia said it’s imperative that urgent measures are adopted to build more capacity to the Port of Colombo through expansion by 2019 in order to ensure the momentum on trade is not lost. He opined that the Port’s operations may be able to optimize the volumes through various efficiency improvement initiatives and deliver slightly better volumes, however, it is evident that current capacity will not be enough by 2019. He also shared with us cost effective transportation solutions available for Sri Lanka’s exporters and importers.
by Sanath Nanayakkare
Q. What’s Maersk Line’s footprint in Sri Lanka?
Established as a joint venture with Ceylon Trading in 1992, Maersk Lanka has been serving Sri Lanka for more than 25 years as on date. After the acquisition of P&O Nedlloyd in 2016, John Keels Holding became a partner of Maersk Lanka as well.
Through its presence in Sri Lanka, Maersk has consistently partnered with the port of Colombo and has played a major role in its development as a transhipment hub. Maersk via its subsidiary APM Terminals is also a shareholder in SAGT which was the first terminal to be developed on a public private partnership model.
Maersk has maintained its commitment to Sri Lanka throughout the civil war and has ensured availability of weekly services which enable the development of the tea and apparel export business amongst other commodities. In 2013 Maersk Line handled an overall throughput of 1 million TEUs at the Port of Colombo and since has remarkably grown our share in line with capacity developments in Colombo over the last 5 years.
With the expansion of the Colombo South harbor in 2016, Maersk has deployed some of its largest ships, the Triple E class, which can carry between 18,000 – 20,000 TEUs and are amongst the largest in the world to the port of Colombo. These ships have set new benchmarks in scale and efficiency and are instrumental in making cost effective transportation solutions available for Sri Lanka’s exporters and importers.
Maersk Lanka is committed to partnering in Sri Lanka’s growth story and has hence looked at various customer centric solutions – our new store door service as well as digitization of operations are two large initiatives towards simplification of supply chains for our discerning customers.
Q. When are you going to launch your Store Door solution in Sri Lanka and how will it simplify your customers’ supply chain?
Our Store Door service was recently introduced for a small set of our customers in Sri Lanka and has received a very encouraging response.
While the logistics value chain has continued to evolve over the years, customers typically interact with multiple vendors – transporters, custom house brokers, liners, financiers, etc – to send out a shipment. This can take up a lot of their time and effort. Our newest offering makes an effort to reduce the number of actors in the supply chain by providing a one stop solution wherein Maersk takes care of all requirements through our comprehensive network. All our customer needs to do is give us a call, and we take care of the rest. In addition to Store Door, we also introduced our revamped online platform that enables our customers to book and manage shipments, track their cargo journey and even connect with our world class customer service team, anytime, anywhere.
Q. How will the ‘single party handover’ help your customers’ core business? If something goes wrong somewhere, how will Maersk address it? You need specialized expertise and commitment for this kind of service. How will you price it?
The need of the hour for any business today is to have a simplified and reliable supply chain. The Maersk Store Door offering essentially taps into this need and provides end to end connectivity and a dedicated single window support for a hassle free experience.
Our store door solution was first launched in India about 2 years ago during which time we invested a lot of effort in continuously improving the service for complete customer satisfaction. We are confident that Maersk’s expertise in the integrated logistics space, our comprehensive Partner network as well as well state of the art technology solutions for complete visibility of the cargo journey will help deliver a seamless experience.
Moreover, our skilled customer service teams and on ground operations teams are available round the clock to step in and take care of any customer concerns.
Our end to end solutions have been developed given our deep rooted customer centric practices at Maersk. We will ensure that pricing for the same is in accordance with industry standards.
Q. How does Maersk handle fumigation requirements for tea exporters?
At Maersk it is our constant endeavor to develop strategic relationships in order to strengthen our services to our customers. Our commitment to provide food grade containers as well as managing allied services to ensure safe transportation is a key quality standard that we adhere to at all times.
We have therefore tied up with reliable and experienced Partners to manage fumigation requirements for our tea exporters thus ensuring a hassle free shipping experience.
Q. What impact will the new end-to-end service have on warehousing costs?
A few aspects of logistics impacting competitiveness in domestic and global markets include underdeveloped material handling infrastructure, fragmented warehousing and lack of seamless movement of goods across modes, among others. Specific to warehousing cost, these are typically of two kinds – first, incurred for normal storage of produced goods and second, incurred while goods are waiting to be shipped at ports.
In case of Maersk’s single window operations, the need to incur the latter should be minimized, if at all, given that we will manage the complete process seamlessly just time for gate in at the port and loading on earmarked vessels. This should bring in a considerable reduction in combined warehousing costs as well.
Q. Could it help decrease importation costs and thereby the price of commodities?
The global economy is looking up, with the growth being widespread and not just in pockets. Sri Lanka is definitely amongst the nations that stand to benefit from the burgeoning demand globally. So we just have to wait and watch for the adoption of the end-to-end service delivery by our customers to better understand the cost saving at various levels.
Q. Sri Lanka is lagging behind in liberalizing its policy on shipping. How does Maersk view this?
Due to its strategic position, Sri Lanka is a key transshipment hub for traffic in the Indian ocean region. Maersk applauds the governments vision to develop both infrastructure and policies around building Sri Lanka as one of Asia’s key maritime hubs, however we do urge the government to expedite some of the development given that other players in the ecosystem are gearing up for better prospects, For instance, the relaxation of the cabotage law in India, will impact in the region in some shape and form and in the long-term. Approximately 33% of India’s cargo is transshipped through foreign hub ports such as Colombo, as Indian ports will now be able to compete equitably for transshipment cargo.
We have consistently been working with stakeholders in the government of Sri Lanka to highlight relevant infrastructural and regulatory developments needed to improve overall competitiveness.
Q. What’s Maersk’s experience in Sri Lanka’s export and import volumes year-on year?
Maersk operations in Sri Lanka have shown consistent growth in line with expanding capacity and a growing market since 2013. In 2017, the Sri Lanka EXIM growth averaged at about 5%. Although the numbers show a slight decline in the first quarter of 2018 due to a variety of reasons, we are confident there will be an upward trend shortly.
Maersk Lanka has had a higher growth when compared to the market in 2017 and continues so in 2018. I am delighted to report that 1 in 5 containers exported from or imported into Sri Lanka is carried by Maersk or Safmarine.
Q. Has airfreight taken a share of your business?
Apparel is one of the key commodities that we have traditionally been carrying out of Sri Lanka for the past few years. This segment in particular has evolved, much to the delight of our customers, and now exports are restricted to high fashion products like lingerie and swimwear. Given that these products require shorter lead times, air freight is the preferred mode of transport.
Having said that, the shift has not greatly impacted our overall volumes in the market as the void has been filled by other commodities being exported from the country viz tea, rubber, coconuts and many more.
Q. Has the currency depreciation led to a reduction in imports?
It is indeed true that Sri Lanka has seen a reduced demand in Q1 2018 on imports when compared to YoY numbers, However, it may not be absolutely correct to attribute this decline to currency depreciation only. While it was one of the factors, others like currency fluctuation, environment uncertainty and global tightening of monetary policy amongst others also had a role to play. We are optimistic that of the growth to revive with a more stable expectation on the currency and with inventory restocking requirements in the second half of 2018.
Q. How important is the much talked about East Container Terminal (ECT)?
The East Container Terminal is planned to be developed as a deep draft terminal to supplement operations at CICT, the only one today that is capable of handling mega carriers. CICT is already operating at more than 80% capacity and is unable to offer berthing facilities to new services. Operationalization of ECT should therefore allow for the much needed capacity expansion with major lines, including Maersk, and further improve the trade scenario in Sri Lanka.
Q. Do you think that CICT, SAGT and JCT have the capacity to meet the growing demand?
As per the installed capacity at the Port of Colombo, the 3 terminals are capable of handling between 7 – 7.5 million TEU’s per annum. In 2017, the port handled 6.2 million TEU’s. In 2018, we have already witnessed a growth of 18% in H1. Based upon this trend we expect volumes to reach 7 million TEU’s by the end of this year.
Port operations may be able to optimize the volumes through various efficiency improvement initiatives and deliver slightly better volumes however it is evident that current capacity will not be enough by 2019. It is therefore imperative that urgent measures are adopted to build more capacity through expansion in the said timeframe in order to ensure the momentum on trade is not lost.
Q. What improvements would Sri Lanka need in its marine infrastructure to be better placed in the supply chain?
Currently the key next step is to ensure East Container Terminal gets commissioned and adds the required capacity to the Port of Colombo.
Additionally, we look forward to improvements in terms of reducing berthing and sailing delays, ensuring adequate availability of tugs in both old and new basin, to mention some. In order to maintain competitiveness , we also recommend integrating the port with well-connected logistics parks, free trade zones that enable cargo consolidation, multi country consolidation and other ancillary services in line with some of the best practices globally.
Q. How does Maersk Line, as the world’s largest shipping company, see the potential of Hambantota Port?
Maersk Line is always looking to call ports with suitable infrastructure to service our vessels and our customers effectively. It is too early to tell whether Hambantota will be of interest to us, and much will be dependent on connectivity within the mainline network, extent of domestic cargo, cost and productivity. This is something we will be evaluating closer to the time once the concessionaires have developed a firm value proposition that would be attractive to our local import and export customers in the eastern part of Sri Lanka as well as container logistics integrators like Maersk.
In Sri Lanka, the port of Colombo is an important transshipment hub for us and we are looking forward to continuing our good relationship going forward.