• Gulf crisis is another opportunity for policymakers to realise SL’s maritime potential

Sri Lanka’s international logistics sector currently contributes less than 2% to the national GDP, a figure significantly lower than the 7–10% average seen in competing regional hubs. While the country’s geographic location offers an inherent advantage, outdated legal frameworks, protectionist policies, and a lack of infrastructure investment continue to block the industry’s potential to become a primary revenue base.

In an interview with The Sunday Morning Business, maritime expert and Shippers’ Academy Colombo Chief Executive Officer (CEO) Rohan Masakorala highlighted the need to eliminate restrictive policies and address the many opportunity costs caused by bureaucratic delays. 

He further discussed the impact of the Middle East crisis on global supply chains and the urgency of implementing a national cohesive strategy to attract Foreign Direct Investment (FDI).

Following are excerpts:

What are the implications of the current crisis on our maritime, shipping, and logistics industries? Can you provide an overall understanding of the situation?

The current crisis is a total disruption of the transportation network, which impacts supply chains for both inward and outward cargo. This includes rerouting, delays, and a significant increase in costs, including surcharges and freight hikes. Sri Lanka is facing the same pressures as many other countries caught in this turmoil. 

While there are similarities to the disruptions seen during the Covid-19 pandemic, the current situation is more  focused on exports to the Middle East, which have reached a virtual standstill. Shipping lines are scrambling to use alternative ports to discharge existing cargo and are trying to find viable routes, but it is utterly complicated at the moment.

With these disruptions to traditional routes, are we seeing a diversion of cargo flows towards Sri Lankan ports? 

We are already seeing requests and diverted flows. The Port of Colombo is currently identified as a congested region due to the high demand for berths. 

When the conflict began, thousands of ships inbound to the Gulf had to halt their progress. Many of these vessels are now returning to other destinations or seeking shelter in ports like Colombo and western Indian ports. Similar congestion had been reported in Singapore. 

We observed over 1,500 ships – a considerable number of which were container vessels – stuck in the upper Persian Gulf, unable to exit the Strait of Hormuz. This massive number of stranded ships created a severe capacity crunch within the global fleet. This effect moved through the industry like a wave, and as a result, the cost of shipping has escalated dramatically. 

Furthermore, insurance companies have increased premiums or retracted coverage for certain sectors entirely, and the ship rental or charter markets have shot up. Ocean transportation carries more than 80% of global trade, and as the first casualty of this conflict, it impacts every aspect of our imports and exports. 

The ultimate result is that consumers end up bearing the cost at various points, from retailers to end-users here locally. We saw this during the Covid-19 era, where the world had to manage high inflation for a prolonged period, leading to serious economic consequences. A collapse in transportation is just the beginning. We are only three weeks into this; anything longer will cost us dearly. 

A major factor is bunker fuel, which generally accounts for about 40% of a ship’s operating costs. Following these attacks, the price of ship fuel surged by 150% of its original price. All of these must translate into the final cost of goods. 

The Brent crude forward market is still hovering around a hundred dollars. By the second and third quarters of this year, these price elements will be fully reflected in global markets, which could slow the global economy or even trigger a recession if the conflict continues for a few more weeks.

How vulnerable is Sri Lanka’s maritime industry if this conflict persists? 

We are extremely vulnerable. Our economy is heavily dependent on energy imports, exports, remittances from the Gulf, and the tourism sector. These are the four pillars of our stabilisation, and they must remain firm to sustain our recovery. If this disruption in the Middle East continues, sustainability becomes a major question. 

If the conflict lasts another three weeks, I anticipate oil prices pushing towards $ 150 in the international market. We are losing 20 million barrels a day. The world started this conflict with about 1.2 billion barrels in reserves, and those will be depleted. For a small economy that has already suffered a serious shock and is struggling to stand up, this would be a crisis. 

Sri Lanka must be very conscious of what lies ahead in the coming months. If this continues beyond another week, while the impact is already being felt in terms of fuel supplies, the repercussions will go far beyond that.

Is there a way for Sri Lanka, particularly our ports, to leverage this situation to benefit the maritime industry? 

Any talk of benefit can only be considered later because we must first address the consequences of the crisis, as well as our past failures. 

Sri Lanka has lagged behind in establishing itself as a true maritime hub. We have lacked serious FDIs because there is no openness in the market; instead, we have restrictive policies and protectionism. This has been the case for 30 years. 

This crisis is another opportunity for policymakers to realise our potential. We have an advantageous location and safety from being away from major choke points, making us a less disruptive location with good infrastructure that could be developed further. Our lack of proactiveness over the decades has cost us immense opportunity. 

For example, the East Container Terminal, started in 2014, is still not finished. The loss of capacity and trust is costing the country significantly. We should be handling close to 12 million containers, rather than eight million. We could have secured headquarters operations and large-scale free zones if not for protectionism and a lack of Government understanding.

It will be a long road for Sri Lanka to get on the right track because, after 35 years in this industry, it is clear to me that bureaucrats and policymakers have failed. They have chosen to protect a few individuals at the cost of 22 million citizens. This has been the larger, systemic picture. 

I am hopeful that this crisis serves as a wake-up call and helps us understand the enormous potential of the logistic and maritime sector. Currently, this sector is able to contribute very little to our national GDP, whereas any other country with our geographic location would have made it their primary revenue base.

You have spoken about a lack of branding and positioning for Sri Lanka. How should we proceed in marketing Sri Lanka’s maritime industry, especially following a crisis like this? 

Branding is secondary to fixing the product itself. Currently, the State controls most of the institutional framework, and we have no proper strategy to market the country. There is a lack of proper human resources to execute this, but more importantly, the investment environment is not right. Everyone talks about reforms, but they are not implemented. You cannot brand a product if you cannot deliver what you promise. 

For 25 years, every Government has promised a one-stop shop for investors, yet it still does not exist. We are way behind our competitors.

Yes, we need a national promotion strategy, but it must be cohesive. The problem is that whenever we attempt to build such a strategy, vested interests intervene and derail the process. Sri Lanka is currently trapped in a challenging governance and legal structure that simply is not promising for the future.

Regarding the current outdated regulatory framework, could you elaborate on how this continues to affect efficiency within the maritime and shipping industries?

The issues span from our legal structures to administrative and labour laws. Some of these date back to the British era, with only minor adjustments made over the years. Furthermore, the reforms introduced in 1977 to create an open economy are now outdated. 

Our archaic laws constrain capacity. In Singapore, the supply of bunker fuel to foreign-going vessels is generally considered an export for tax purposes and can be zero-rated under the Goods and Services Tax (GST) Act. Singapore sells 48 million tonnes, while we sell one million. We must modernise. 

This stagnant investment climate is a challenge for both potential investors and existing businesses looking to expand. It is the reason Sri Lanka’s performance numbers have remained lacklustre for the last two-and-a-half decades; we haven’t seen any game-changing growth. The laws and processes are prohibitive and corruption remains high in global rankings. 

While the political system has changed, the bureaucratic and governance systems have not, leading to persistent issues at every level. Sri Lanka requires comprehensive national policies that can drive this country out of the current terrible situation, rather than allowing for petty politics or vested interests. 

Unfortunately, Sri Lanka is known internationally as a place that lacks openness and transparency across industries. The result is a serious level of poverty. For as long as the country does not prosper as a whole, only a few elites will thrive at the expense of everyone else. 

Looking ahead, what are the most important gaps that must be addressed to revamp the industry, especially considering the current crisis?

The country requires solid, structural reforms in FDIs, specifically in sectors that support exports and the logistics industry. This means comprehensive legal and procedural changes, including reforms at the ports, Customs, the Merchant Shipping Secretariat, the Board of Investment, and all border-related agencies. We need an investment climate with transparent policies, including a genuine one-stop shop for investor services. 

Another critical gap is legal reform for commercial disputes. In Singapore, 98% of disputes are settled via arbitration within 48–72 hours. In Sri Lanka, a commercial court case can drag on for 15, 20, or even 60 years. No rational investor will take that risk. 

Additionally, our labour laws and land management processes, which are often subject to political influence, render us uncompetitive in the international market. For over the last 25 years, a few of us have spoken openly about these issues. The greatest tragedy is that because of this lack of reform-minded leadership, our best minds are leaving. 

Also, regarding the current situation, if a Government with a significant mandate cannot initiate these changes within its first two years, we are not in for a good ride. 

In terms of the targets the maritime and shipping industry should ideally set, how can we expand our service offerings and improve our regional competitiveness? 

The primary target must be to align our legal and regulatory structures – specifically the Merchant Shipping Secretariat, the Sri Lanka Ports Authority, and Customs – with international standards. Arbitrary numbers are meaningless until the underlying infrastructure and policy environment are ready to support them. 

We must target regional value addition for re-exports through strong free-zone operations. In hubs like Dubai or Singapore, these services contribute billions to the economy. We don’t necessarily have to manufacture finished goods; we can thrive by providing sophisticated logistics and value-added services to global clients. This also requires faster capacity expansion. Because of our delays, business has migrated to other regional ports. 

Similarly, we lack the policies to support aviation-related cargo expansion. For instance, the second runway at the Bandaranaike International Airport (BIA) was planned for 2003, yet it was stalled by protests and eventually abandoned for less viable projects. Our infrastructure must be made right. 

I have personally brought in world-leading cruise operators who provided comprehensive papers to ministers on how to develop cruise tourism, maintain a clean environment, and build necessary passage infrastructure. Nobody listened. The opportunity cost of our inaction is staggering. 

Currently, international logistics contributes less than 2% to our national GDP. In a developed hub like Dubai, that figure is 33%. In most countries that leverage their geographic advantages, the average is between 7–10 %. 

Beyond that, the instability of our financial market and the lack of trust following our bankruptcy mean that many services are parked outside the country. Moving from 2% to 10% of GDP is an enormous task that requires a total commitment to reform. 

In Sri Lanka, many knowledgeable people are frequently excluded from the governing framework, or when they do enter, they are neutralised by the power of money and influence. This is the sad reality of how reform is halted in Sri Lanka. If we want to prosper, we must move towards a system that is fair, transparent, and driven by national interest rather than the protection of a select few.