Export costs to the EU to increase

The Sri Lanka Freight Forwarders Association (SLFFA) has warned exporters that the cost of exporting to Europe will increase over the next one year period. This is due to the increasing shipping charges to Europe.

“Prices on the European trade line, including the Mediterranean, have increased by around US$ 800 for a 40 foot container within this year so far and we are expecting another price increase in September. This will of course affect all Sri Lankan exporters as the cost of exports will increase and will reduce export profitability,” said Chairman of the SLFFA, Niral Kadawatharatchie at the SLFFA annual general meeting on Wednesday.The freight forwarders say shipping costs to the EU is increasing because Chinese exports to the EU are increasing and the expanding Chinese exports are taking up more space in ships and reducing available space for Sri Lankan cargo.

“The freight rates are going up due to reduced space in the ships calling at the port of Colombo. The space allocation for Sri Lanka as an export loading port has reduced drastically over the past few months.

This is because over the past few months the US dollar has been weakening and the European currency has been appreciating. So while the US purchasing power has reduced the EU’s purchasing power has increased, and the EU is importing more and more from China. As a result the ships on the EU trade link are full. So ships coming to the port of Colombo don’t have enough space for Sri Lankan exports,” explained Kadawatharatchie.

Meanwhile, demand and supply dynamics have come into play and the increasing demand on reducing ship space is pushing up freight rates. “Because of the demand on the limited ship space, the freight rates are going through the roof. The prices have been increasing every three months and we can expect another US$ 400 price increase in September,” said Kadawatharatchie.

The freight forwarders say the present situation is due to external global market dynamics and cannot be avoided. Therefore, exporters are told to expect further increases in export costs over the coming one year period. “There is no solution for this situation.

This is purely due to the shipping lines increasing their charges because of the demand. This may go on for another year until new tonnage comes in. The new tonnage which will at least stop these quarterly price increases,” said Kadawatharatchie.