Regional hub-centre for trade and logistics

Peter Barbut

Sri Lanka, a Future HUB for Trade and Logistics for the Indian Sub Continent (ISC) Region. Today at the higher corridors of the government, there seems to be a lot of ambitious thinking and forecasting in creating Sri Lanka into a regional hub-centre for trade and logistics, which will follow as one of the next in-line revenue generators after tourism in the coming years

Sri Lanka is uniquely situated in the backdrop of the India-sub-continent and within the closest proximity to the international ocean routes that link from Asia to Europe and is currently a partial gateway to the Southern and Eastern part of the Indian peninsula, catering to the transhipment services for Indian import and export trade for the Southern states of Tamil Nadu, Karanataka, Hyderabad and Kerala and Kolkata.

Having said this, one also has to keep a close watch on the current developments taking place in the ports sector of the Southern Indian region where new and additional port infrastructure is rapidly enhancing. Further to these developments, there was also a recent announcement from the Indian Government, on their plans to develop the Island of Port Blair as a major port, which can possibly be converted for trans-shipment relays from Far-east and Europe to cater the Southern ports in time to come.

Port infrastructure

With these far fledged plans of the Indian shipping authorities, we in Sri Lanka will have to give some serious thinking on how we are also going to develop our port infrastructure and logistics blue-prints to ensure that we are not eventually caught up in the race and investments do not go into under utilization of resources and assets, as today the reasons for major shipping lines calling at the port of Colombo is primarily to trans-ship the volumes of containers to the Southern ports of India. (In fiscal year 2009-10, which ended in March 31, major ports in India handled was 6.87 million TEUs from 6.59 million TEUs, are growth of 4.3 percent, covering 12-major ports which includes Kolkata, Paradip, Visakhapatnam, Chennai, Tuticorin, Cochin, New Mangalore, Mormugao, JNPT, Mumbai, Kandla and Ennore).

International markets

Unless, Sri-Lanka also can increase substantially our export products to the international markets in USA, Europe and Asia, we may not be in advantages situation to attract the main liner vessels to frequently call at our ports. We need to avoid this unforeseen situation, which one may say it is more a speculation than a reality, or a debate that we can deliberate when it happens, but it is always a wise thing to be more cautious than be taken by surprise.

The Government has to now give utmost priority to re-build and bridge our deficit between import spending and export earnings (Foreign Exchange). This can be done in several ways, not only exporting our manufactured goods but also exporting our services in the form of value addition through Sri Lanka. It could also be done by way of developing our logistics capabilities by creating the most modern warehousing infrastructure facilities to temporary store and deliver ‘JUST-IN-TIME’ supply chain management systems to the large manufacturing companies in Southern India, mostly in the Tamil Nadu state, with the opening up of SPEZ’s where today multinational brands have already set-up their plants which cater to the Indian domestic market as well to export markets, a major area of concentration can be found in the automotive sector, where OEM’s also have shifted their productions from other locations due to cost effective advantages in India.

If Sri Lanka is to position herself as a potential relay hub for goods and services to the ISC region, we must also develop our professional manpower in the logistics performance area. Without having the right skill and knowledge, in the operations aspects of the global logistics concepts, we cannot provide the international service levels to these ventures. Apart from training and developing human resources, we also must find the right synergy that brings about the economic and service advantage to create the conducive cost benefits.

Similarly what Singapore offers today as a regional distribution-centre in the Intra-Asian region for many large multinational companies operating out of Singapore, to reduce shipping time and the execution of supply with the least time frame from order placement to final delivery to the end users.

ISC regional countries

Even today ISC regional countries - India, Pakistan and Bangladesh, Maldives and Sri Lanka also buys in, the raw-materials, semi-finished goods and fully manufactured merchandise from this regional distribution centres. Some versatile points of consideration that we should be thinking in order to accomplish the hub reality is said below:-

* Port charges for third country merchandise should have a very low handling tariffs.

* Port Turn-around of merchandise discharge from containers into trans-shipment warehouses should be done within a maximum time frame of 12-24 hrs from the time of arrival of the import vessels.

* Trans-shipment rent to be minimal with 14-days free time allowed

* Bonded trans-shipment warehousing facilities to be provided within a close proximity to the port.

* The private sector participation to be granted in the management of the third country cargo warehousing, where inventory stocks can be managed within a bonded system.

* Re-export of third country cargo has to have a one ‘stop’ Customs clearance procedure where shipments can be loaded onto export bound vessels to ISC ports within a maximum of six-hrs time frame, as the whole idea behind is to fulfill ‘Just-In-Time’ deliveries to the final consignees.

* There should be no element of any Customs duties or surcharges charged on third country cargo.

* The Government should be only targeting a revenue of 1-2 percent on the value (FOB) of the third country merchandise to be competitive and collect this revenue only when the re-shipment/trans-shipment is taken place, all incoming shipments will have to be warehoused once the containers are arrived at the port of Colombo.

* The Sri Lanka Customs will have to formulate just one type of documentation in line with CUSDEC for 3rd-Country shipments.

* The Logistics service operators will provide a Bankers Guarantee to only cover the 1-2 percent Government revenue and the risk exposure to the values of the third country merchandise will be covered through insurance by the suppliers who will maintain the inventory at Sri Lanka.

* A fully integrated IT-system should be linked with all the stakeholders for the venture to minimize undue delays in the time for third country cargo, whilst transitting through Sri Lanka. By providing a smooth flow of goods through the hub operations, which is a captive advantage if we can provide and manage to achieve the efficiency levels of ‘JIT’ delivery concept, enhancing the reliability in the ‘Supply Chain Management’ philosophy, which is today the most important criteria in the process from manufacturing to the final consumer.

Foreign exchange

By providing the advantages of a reliable delivery efficiency coupled with cost effectiveness, we can significantly cut-down the lead-times of shipments/containers through the hub, will be one of the major factor to increase the volumes, whereby the Government will be able to generate more foreign exchange in totality.

Considering all other value added services including cargo insurance that would generate from such a venture. At the same time, Sri-Lanka can also attract some of the players of the OEM Industry in the automotive sector as the OEM companies can also take the advantage of exports out of Sri Lanka to other world auto markets.

Hence it will also be able to bring-in automotive component manufacturing industry to the Sri Lanka manufacturing fold instead of only looking at ready-made garments, which today is showing symptoms of becoming gradually an unsustainable industry from the statistics that are known with several garment factories closing down instead of opening new units.

The country must now look forward to getting itself into other potential light industries more technology driven and do not become too much dependant on the old cash-cow.

Geographical position

There are several value additions that can be provided by the logistics providers, from pick and pack, kitting, from bulk into consumer packaging, MRP price labeling with bar-code maintain inventories for re-export to the ISC region and beyond. Even looking at some of the central Asian countries, many other value added services required by final consignees can be provided which would also generate employment in the logistics services industry. This will bring in additional opportunities to the banking sector, by way of developing the required financial environment to multi-national suppliers for cross-trading, from inventories maintained at Colombo.

By creating an efficient hub, catering to logistics and inventory management and providing the necessary infrastructure, Sri Lanka can continue to maintain its shipping edge due to its geographical position in the Indian ocean, by guaranteeing a ‘JIT’ delivery commitment with a lead-time reduction by 50 percent in comparison to goods supplied from regional logistics-hub in Singapore, will be able to harness two-fold economic advantage.

The writer is CEO, Academy for International Trade and Transport (AITT), professional training division of the Sri Lanka Freight Forwarders Association (SLFFA)