Shipping costs sailing into volatile waters
Shippers are calling on the government for a regulator for maritime services to help contain shipping cost volatility.
Freight costs of exports are expected to continue on an upward trend in the coming months mainly due to reduced ship space for Sri Lankan exports. Meanwhile, the lack of a regulatory mechanism to control increases of ‘ancillary charges’ by shipping lines, is expected to add to difficulties by making shipping costs more unpredictable for both imports and exports.
“Basically there is not enough capacity and extreme pressure on space. Therefore, we may face freight increases particularly in west bound trade,” said Jayanath Perera, the outgoing Chairman of the Shippers’ Council, at the council’s annual general meeting on Wednesday.
Shippers say that although larger ships took to the seas during the last year, the extra capacity introduced by these ships have been absorbed by China and India. Three shipping lines have also reduced services to the port of Colombo. The shipping line Hanjin cut its services from 2 to 1, Norasia pulled out from its weekly European round and Maersk has changed its service routes.
All in all, shippers estimate that Sri Lankan exporters have lost about 600 twenty foot equivalent units (TEUs) of ship space due to these changes by shipping lines.
“This is a very large quantity and no steps have been taken by any other line to replace these losses,” said Perera.
Given the increasing demand on limited freight space, freight charges are expected to continue upwards.
Meanwhile, shippers say import-export trades and consumers face more price unpredictability because there is no regulatory mechanism to control increases of ancillary charges by shipping lines. Shippers say these ancillary charges, like the terminal handling charge (THC), are not included in the freight rate and are not decided by market forces.
“In the recent past we have seen some of the shipping lines introducing some ridiculous charges in addition to the controversial THC,” said Perera.
“We have no regulatory body to look into these arbitrary and unreasonable issues in the shipping sector,” said Perera.
The shippers say some of these problems would be automatically sorted out if Sri Lanka’s port capacity were to increase, placing the country on a more competitive footing. Inadequate port capacity, say the shippers, reduces Sri Lanka’s bargaining power with international shipping lines.
“The failure in taking necessary steps to develop our infrastructure in line with developments taking place in world trade, particularly in our neighbouring economies, is the main reason why our authorities have to turn a blind eye to these issues,” said Perera.
“Time is money and shipping lines expect improved productivity levels to save time and money,” he said. But with congestion in the port, productivity levels cannot be improved, say the shippers. As a result some shipping lines have moved their services to Indian ports.
Shippers are calling on the government to fast track development of port infrastructure to retain export competitiveness and geographic advantages. As a national safeguard measure, shippers are calling on the authorities to set up a regulatory body for the industry, to help contain further price unpredictability.