Comment: To capitalise maritime business

Sri Lanka Ports Authority last week launched the Colombo Port Expansion Project, a landmark project in the annals of the Colombo port as well as the economic development of the country. Geographical location of Sri Lanka is considered as one of the major advantages the country has for its economic development.

Though we know of this best economic advantage for several centuries we had failed to utilize it as a main economic activity as a result of inward oriented policies and the absence of a forward look among our policy makers about the expansion of the world trade, scale of globalisation as well as friction to structural changes and private sector investment into the sector.

After the economy opened up in 1977, we were compelled to expand the port facilities in the country to cater to the increased trade volume as well as the emerging transhipment business. As a result from early 1980s there is a steady development in the Colombo port.

Therefore today the Colombo Port is in a competitive position in the region. Recently it was ranked as one of Asia's leading deep-water ports that offer high quality services to shippers and shipping lines.

Today the Colombo port meets global standards. It was the first port in the region that became compliant with the ISPS code, Mega Port and CSI initiatives of the USA.

However the growth rate is not sufficient to meet the increasing demand and face the competition from the other regional ports. The Southern Port development project is also in the pipeline for several years.

This new project will make the Colombo Port ready to face new challenges and to capitalize on new opportunities in the industry. We have to compete with 11 major Indian ports as well as Singapore and Bangladesh ports, in South East Asia.

To face the competition we should look at the strategies adopted by our competitors. Earlier the Government of India dominated the maritime activities. However the policy direction is now oriented in encouraging the private sector to take the lead in port development and operations.

Many major Indian ports are now operated as landlord ports and international port operators have been invited to submit competitive bids for BOT terminals on a revenue sharing basis.

As a result Indian port sector could attract significant investment on BOT basis by foreign players including Maersk (JNPT, Mumbai) and P&O Ports (JNPT, Mumbai and Chennai), Dubai Ports International (Cochin and Vishakapatnam) and PSA Singapore (Tutticorin). Today the Colombo port has to compete with these new corporate giants and not with government sector players.

CPEP investment policy is similar and will be able to attract expected investments to complete the planned project. However as the sector is expanding rapidly the CPEP will have to accelerate the project.

The whole project is scheduled to be completed by 2026. Sometimes this is too long a period and by that time the maritime industry would be in a declining phase, because today industries are in a process of cutting the lead-time as much as possible and are increasingly moving to air cargo transportation.

Anything can happen with new technologies and the speed of globalisation.

According to industry sources the Asia region maritime industry growth has been unexpectedly strong since 2001. Though most industry analysts had predicted a downward trend in the shipping business in the region as a result of geopolitical tension, those gloomy forecasts have been proved wrong. The growth of the sector was fuelled by buoyant economies in the region.

Asia will be the centre of gravity of the world maritime business for a long time as a result of new trade and investment flows across the globe. Asia and countries in the former Soviet Union are becoming the largest markets. As a result of people coming out of poverty their demand for goods are increasing.

At the same time manufacturing industries are offshoring in the Asian region and both these reasons will boost the maritime industry.

Most of the industries are moving to just-in-time production process and it will create a wide net of supply chains across the region via ports and maritime roots.

Already these supply chains have become the main source of maritime industry demand, especially in transhipment business. For instance accessories are coming from 30 suppliers across the Asian region for the just-in-time production of a DELL computer. Wall Mart, the worlds largest supply chain gets most of its garment supplies from the Asian region.

Competition among Asian ports is intense and no port will be able to survive without timely investment. Measured by cargo handling capacity, Singapore port was the world's largest port until 2005.

It was overtaken by Shanghai port, China. Singapore is the largest transshipment port today and is competing with Colombo port in the regional transshipment business. Without investing timely advantage of geographical location alone will give anything to the Colombo port.

We have huge, untapped potential and opportunities in the maritime industry in addition to Colombo. Hambantota Port is one of them we are talking about and planning for many years.

Trincomalee is one of the world's best natural harbours but with the prevailing security situation it cannot be used as a commercial port. Geographical location of Sri Lanka will be an opportunity in the economic development only if adequate investments come in. CPEp terminal services will be on the basis of Private Public partnership where regulator and the landowner is the public sector.

However regional ports are going ahead in attracting private investments by offering private public partnerships where operation as well as land ownership is transferred to the private sector. To tap the full potential in the port sector we have to change our mindset towards private investment.