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Slack export demand, cause

Ceylon Finance Today: Slack demand in Sri Lanka's major importing economies have seen box rates fall steeply by between 50%- 75% in the last two years, causing a cash crunch to the island's shipping industry, market sources who didn't want to be named told Ceylon FT yesterday.

As a result, sea freight costs to the EU region, the island's number one export destination, have seen prices on 40 foot container shipments, known as 40 foot equivalent units of containers (FEUs), decline steeply from US$ 1,700 -1,800 per FEU to US$ 450 an FEU, a fall of between 74% and 75%, while the sea freight cost of 20 foot equivalent container units (TEUs) had had dropped sharply from US$ 1,360 to US$ 1,440 per TEU to US$ 300-400 currently, they said.
The sources further said that shippers' main destination to the USA, Sri Lanka's second largest export market region wise (after the EU), was the East Coast. There too, sea freight charges for Colombo's export cargo had fallen steeply by between 48-49%, they said.

For instance two years ago sea freight charges to the East Coast was at a high of between US$ 3,500-US$ 4,000 per FEU, the sources said. But since then, those have fallen to a low of between US$ 1,800-2,100 per FEU, the sources said. Sri Lanka's sea exports are generally done in FEUs and TEUs, with the price as far as the latter is concerned, on an average being 80% of the former's price, they said. The EU region is going through a recessionary related economic regime which has not quite recovered after the global financial crisis of 2008, hence the reason behind its slack demand.

"Though the US economy has recovered, demand has not quite picked up", the sources said.

"Usually, from the middle of July to end November, we see a flood of exports to these markets due to the Christmas season, we however don't see such a demand taking place now," they said. Volumes are low.

The industry however has got some relief due to falling oil prices which have come down by 50%, but the chief reason for sea freight prices to come down is due to poor import demand from the island's major import markets and not due to declining oil prices, the sources said. "As a relief to the industry, we have asked the authorities to cut down on imports taxes," they said. That will hopefully create local import demand, thereby alleviating the hit taken by the industry due to a fall in export demand, the sources said.

They also said that the shipping industry, directly and indirectly employs thousands. Some ship operators have established offices in Colombo, while others have appointed local agents. Still others who have had representative offices till now, are now seeking partnerships by the appointment of local agents.

Meanwhile, Sri Lanka's major import markets are India, China and Singapore, from which markets, relatively little revenue is gained as ship transport costs, compared to shipping to the EU and the USA, they said.

Nonetheless, the bulk of shipments from Colombo are transshipment cargo, to and from the Indian Sub Continent, which comprise 70% of ship traffic emanating to and from Colombo. According to latest data, Sri Lanka's domestic cargo handling vis-à-vis the Colombo Port grew by 11.1% year on year (YoY) to 586,513 TEU in the first half of the year; while that of transshipment cargo increased by 5.1% to 1,882,875 TEUs.

The sources said that the white elephant vis-à-vis carriers was the building of mega carriers, some of which could carry as much as 18,000 TEUs at a turn. Those however have caused an over-supply situation in the market, the sources said. Ideally, markets such as Sri Lanka need only 5-6,000 TEU carriers and not the mega 18,000 TEU ships, the sources said.

If that had been the case, the current shipping crisis could have had been averted, they further said.

(CTD - 26102015)

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