Country lacking domestic export, import volumes to satisfy mega ship operations: CICT official

The current trend of shipping lines procuring and operating mega ships would lead to Sri Lanka having higher freight charges instead of the intended opposite effect if the country does not increase its import/export volume, according to an industry expert.

“Megaships are now an accepted thing. They’re building ships like no tomorrow. They went and built excess capacity ships-supply and demand situation--freight rates drop. So how do they bring it back up? Blank a sailing,” Colombo International Container Terminals Ltd (CICT) Commercial & Marketing General Manager Tissa Wickramasinghe said.

He noted that shipping lines can afford to blank sailings to Colombo Port and dictate terms to local traders as the country does not have enough domestic export and import volumes to satisfy the shipping lines.

“The logical reasoning is that the ships follow the cargo, not the other way around. Now, when we produce cargo, ships will decide whether it’s worthwhile to call. (But) if the volumes are high, the ships have no choice. That is the ideal scenario. Then the ships will become our captive market and we can dictate terms to them,” he said.

If the low volumes persist—Sri Lanka being an import driven economy—prices of goods will increase, as goods would have to spend more time in foreign warehouses with the associated costs, and according to the law, the party offering the contract is required to pay for all costs in carriage of goods.
Wickremasinghe further added that Colombo was developed as a transhipment port for the past 2-3 decades due to the weakness in domestic imports and exports, which could become a concern in the future.

“When the port runs on transhipment cargo, the port and terminal operators run the risk of the volume shifting out of Colombo at any time. But if the domestic cargo increases, ships will have to call on Colombo,” he said.

He also pointed out that around 30 percent of containers in ships leaving Colombo are empty, therefore calls for increased exports, as shipping lines take empty container costs into account when setting prices.

If Colombo is able to fully cater to mega ships with volumes, freight rates would drop significantly, and international buyers will become more attracted to Sri Lankan exports.

The daily cost per TEU in a ship with an 8,500 TEU capacity would be US$19.61 at sea and US$ 7.65 in port. In contrast, for a mega ship with a 14,500 TEU capacity, the cost would be US$17.80 at sea and US$5.82 in port, and US$15.54 and US$5.12 respectively for a ship with an 18,000 TEU capacity.

However, the number of TEUs shipped globally could increase in the near future, as a maximum weight limit on TEUs has been stipulated by the International Maritime Organization in their Safety of Life at Sea convention; set to take effect in July 2016. This will increase costs for traders.

Wickramasinghe noted that certain shipping lanes have seen a drop in sailings of up to 10 percent with the introduction of mega ships, with freight rates too going down to around US$150 per TEU.

However, he said that wider and deeper berths and channels are required to accommodate the ships while larger, and more cranes are required, as the current cranes which average 50 moves of TEUs an hour can only handle 35 moves an hour due to the deeper hulls of mega ships. (CW)