Last year, the government of Sri Lanka announced an amendment towards two logistics related acts (Sri Lanka Ports Authority Act, No. 51 of 1979 and the Merchants Shipping Act, No. 52 of 1971) during the 2017 Budget. The acts were to take steps to forgo the shipping agents within the logistics industry of Sri Lanka and to lift regulations against foreign owned shipping/freight forwarding agencies so they are able to operate within Sri Lanka. This in turn will enable international shipping agencies/lines to enter the logistics industry in Sri Lanka without any barriers to entry.
The change is being carried out in the hope of attracting top players in the international logistics market to invest in the logistics industry in Sri Lanka. Prior to the amendments, international shipping players were only permitted to own 40% stakes in a local shipping agency which limited investments due to lack of operational control and minority equity stake. By liberalizing the constraints in the logistics industry in Sri Lanka, key players such as Maersk can be invited to invest in Sri Lanka. By doing so, transaction costs may be lowered and in line with the development of transhipment hubs in India and Pakistan being developed, the movement of increased volumes will be possible.
However, the 2017 budget proposal created shock-waves in the logistic industry in Sri Lanka with much opposition by the CASA (Ceylon Association of Shipping Agents) and SLFFA (Sri Lanka Logistics and Freight Forwarders Association). Their arguments against the 2017 Budget proposal includes the fact that further foreign investments (more than 60% on shipping agents) will not reduce freight rates as freight forwarding agents do not control shipping rates, which falls under the purview of the shipping lines. Furthermore, the proposal included the use of ‘an independent Ports regulator’ without mention whether it will be an international or local party which can bring up national security complications.
The government has brought forth this proposal to stay in line with similar operations occurring in other Asian countries such as Hong Kong, Vietnam, and Singapore and for the logistics industry in Sri Lanka to be competitive in the global freight market. The logistics industry in Sri Lanka includes 130 registered members of CASA that represents major container shipping lines as well as non-container shipping vessels. Furthermore, there are more than 750 local shipping/freight forwarding/clearing agents, with more than 12000 staff employed by them.