Government fires first salvo against shipping monopoly
The Sri Lanka government has fired its first salvo against the monopoly of major conglomerates in the shipping and freight forwarding businesses on the island by removing the equity restrictions on foreign shipping companies to handle the business locally.
The removal of the equity limit on foreign shippers through the 2018 budget proposal would pave the way for major international shipping lines and logistics operators to base their operations in Sri Lanka, official sources said.
The monopoly of those shipping companies can control the freight rates and pressurise the Sri Lanka Port Authority to reduce tariff rates in order to benefit their interest, a senior government official said adding that those firms could dictate freight rates to the exporters of Sri Lanka and prevent competition in the shipping sector.
However Ceylon Association of Shipping Agents (CASA) and Sri Lanka Logistics and the Freight Forwarders Association (SLFFA) have vehemently protested against the government’s move claiming that it will not bring in any additional investments or benefits to the country as envisaged.
The existing restriction applies to shipping agency / freight forwarding functions only and not to investments in other facets of the shipping lines/ logistics activities, CASA claimed.
Ports and Shipping Minister Mahinda Samarasinghe also told Parliament on Wednesday that the SLFP parliamentary group including ministers were against the government’s move and they proposed to impose a pre-qualification for the granting of full foreign ownership only if the those firms agree to invest over US$100 million.
Maersk, Hanjin, Evergreen and other international shipping lines are keen to establish their branches to make Colombo a hub for their shipping and port-container operations, the official pointed out emphasising that these companies had been compelled to set up joint-venture partnerships with local shipping agents due to existing limit of 40 per cent foreign equity .
Such companies will definitely increase their stake to 100 per cent from 40 percent under the government’s plan to make a new Colombo’s logistics hub, between the logistic hubs of Singapore and Dubai, he predicted.
Although these foreign companies may send their profits out of the country, the government would be able to earn much needed revenue through the collection of taxes from them, he said.
Finance Minister Mangala Samaraweera said that Maersk, for instance, might move its South Asia hub from Mumbai to Colombo – providing it has full control of its operation.
“That could create up to 3,000 jobs. Other international shipping lines would follow. Then the international freight-forwarders would come in,” he opined.
Almost all shipping agencies were controlled by a few business tycoons heading the main shipping firms who wield the power of political connections with the previous Rajapaksa regime preventing the creation of a logistics hub, despite the country’s strategic location in the Indian Ocean, shipping industry sources revealed.
Issuing a statement, Maersk Line, the largest global container shipping line and a market leader in Sri Lanka, welcomed the move of shipping liberalisation stating that the company would engage closely with its valued partners in Sri Lanka and together evaluate options on increasing its footprint in the country.
Another leading international shipping firm Hapag–Lloyd has extended support to the government’s decision to fully open the sector to foreign firms.
Big foreign shipping companies will also bring new technology and new knowledge on logistics and supply chain management while paying high salaries to around 12,000 shipping sector employees including documentation clerks working in 750 local firms, industry sources claimed.
The FMC (Federal Maritime Commission) of the US, anti-competitive authority in the European Union, Monopoly and Competition councils and authorities around the world are yet to monitor the monopolistic situation in the local shipping trade and it will definitely endorse the government’s move, senior government official said.
The Sri Lanka Ports Authority Act (No 51 of 1979) and the Merchant Shipping Act (No 52 of 1971) would be amended to cater to the demands of the modern-day logistics and marine industries; he pointed out adding that: “This will also ensure healthy competition. An independent ports regulator will be introduced.”
The shipping agency cartel of Sri Lanka headed by two conglomerates were making attempts to prevent the introduction of those shipping liberalisation regulations in parliament by influencing several senior ministers and MPs in the government, he disclosed.
Attracting Maersk or another leading shipper to establish its South Asia hub in Colombo Port would be better than its limited presence through its joint venture partnership with local shipping agency houses, he said.
Local shipping agency houses are engaged in shipping and logistics / freight forwarding business in foreign joint ventures.
Even at present all the main shipping related functions are being handled by the principal shipping lines through its Sri Lankan agencies although they have a majority stake in the company, a local shipping sector expert told the Business Times.