News

Containers held up at Port: Demurrage costs add to importers’ woes

By Skandha Gunasekara

Despite the Sri Lanka Ports Authority (SLPA) insisting on the contrary, importers charge that over 1,000 containers are still held up at the Colombo Port due to a lack of US Dollars needed to release them.

Importers are seeking $ 120 million to make payments and clear essential food items from the Colombo Port each month, and are calling on the Government to reduce or remove demurrage charges for consignments stuck in port due to forex shortages.  

This is in the backdrop of economists warning of a knock-on effect on the economy if international trade becomes stagnant.

As the economic crisis worsens, the dollar shortage is squeezing importers, leaving them unable to clear the cargo from the ports.

Cargo clearing challenges

Essential Food Commodities Importers’ and Traders’ Association President G. Rajendran complained that there had been no headway with the local commercial banks releasing dollars and that clearing cargo was one of their biggest challenges.

“There is no improvement from the commercial banks. Still we are facing an issue with foreign currency to clear our stock from the port. But I don’t know whether the Government has the answer. Yesterday I saw a news report saying the Government had released $ 50 million, but so far, no commercial banks have released any dollars to us. We are in a very bad situation; there are no dollars and we are paying huge demurrages. There are many cargoes containing sugar that have been lying in the port for the last two months. Bank of Ceylon is doing nothing; they are not taking care of us. They’re not giving a single dollar and they have even told us not to make any imports through the Bank of Ceylon.”

He said that if there was no improvement, release of essential food items would become a problem as there were over 1,500 containers stuck at the port at present while a response from the Government was yet to come.

“We are working with other banks of course and Commercial Bank and Sampath Bank have helped. The commercial banks are really helping and giving us whatever dollars that they can. Other than that, we are really facing a very big problem to clear these essential food items. If it continues like this, I think very soon we won’t be able to clear anything. As of now there should be more than 1,000 to 1,500 containers there because more containers were lying in the port, but nobody was providing anything. We have been giving all the lists to the Central Bank through our Trade Ministry. I think we sent several times but so far we haven’t got any response from them.”

Demurrage damages

Rajendran pointed out that demurrage charges and other costs paid due to delays were paid mainly to foreign-owned terminals at the port or foreign shipping companies, resulting in much-needed foreign exchange leaving the country unnecessarily.

“Whatever the demurrages we are paying to these port authorities, only one of the three are owned by Sri Lanka. There are three terminals in Sri Lanka – one is SAGT, one is the Sri Lanka Ports Authority, and one is CICT. Apart from the SLPA, the other two terminals do not belong to the Sri Lankan Government. Whatever the demurrage that we are paying, they have to take that money back to their country. At the same time, we are paying the shipping companies for shipping container demurrages also; they have to convert it into US Dollars and send it back to the origin. Paying these demurrage costs results in us spending more dollars. The government has to work on this because we are unnecessarily paying these penalties.”

He said that his company alone had paid an estimated Rs. 50 million in demurrage charges in a single month with a possible collective Rs. 2 billion or more from all importers. He questioned why there was no mechanism to prevent dollars paid as demurrage charges from being sent overseas.

Rajendran said it was crucial for the Government to intervene as these were essential food items being imported, with the delays having a negative effect among foreign exporters and suppliers could be lost as a result.

“They have to do something because they are asking us to import and then the containers come and we have to incur damages. There are other unnecessary costs such as with exporters who supply us. We get essential items on credit, because we’ve known them for several years; after that we are unable to pay that bill. We will lose their trust when this keeps happening and we might lose our suppliers as well,” he explained.

Container shortage

Rajendran also pointed out that due to the container shortage globally, logistic companies and exporters were becoming apprehensive of shipping containers to Sri Lanka due to the long delays holding up containers at the port.

“Another serious issue is that overseas suppliers and exporters are getting nervous about shipping to Sri Lanka because the containers are stuck at the ports. This is an issue because there is a shortage of containers all over the world due to the pandemic affecting the shipping industry. When we bring down cargo and it gets stuck at the port for long periods of time, we are risking not getting containers and supplies not being sent to Sri Lanka.”

He asserted that the association had written to the Minister of Finance with their requirements and that a minimum of $ 120 million was needed each month to bring down essential food items.

“We have given all the details to Finance Minister Basil Rajapaksa, and the State Minister as well as the Central Bank with regard to essential food commodities, including sugar, dhal, and oil, that means cooking oil; for all those things we need approximately $ 120 million each month to import. The cargo is being cleared slowly each time the banks release some dollars but the problem is that we have put in orders several months ahead so the containers with goods keep coming and the bills must be paid and the containers must be cleared. Some contracts with our suppliers are for six months in advance. We can’t stop these imports because they are all essential food and other items and we have a responsibility to make sure there is no food shortage in the country.”

He said with moves to commence the importation of rice, cargo clearance in a timely manner was critical.

“Now we are going to start importing rice once again because there is a scarcity of rice in the domestic market. Here again it will be a huge quantity of rice so we need to receive some support from the Government.”

He urged the Government to at least help by waiving off demurrage charges for delayed cargo. “We ask the Government to waive off the demurrage fee and for costs of shipping companies to be reduced. But the problem is only the SLPA can help while the SAGT and CICT won’t help in that way as they are private entities. The Government cannot force them as they are operating at the ports to earn money.”

SLPA denies delays

However, a contrasting report was given by the Sri Lanka Ports Authority (SLPA) regarding delayed cargo.

SLPA Vice Chairman Upul Jayatissa was steadfast that there were very few containers stuck at the port currently, adding that if any importers had issues, they could write to the Ceylon Chamber of Commerce with their grievances.

“Actually, we don’t see any delays. The Port is running smoothly. We had a growth of 5.8% overall last year and the port is running normally. There are no containers stuck at the port. If there was any congestion, we would feel it because the yards would be full. But there is no such situation. Normally there are some containers lying in port, but not in large numbers. If anyone is having any issues, they can write to the respective department at the Ceylon Chamber of Commerce, but we don’t feel there is any congestion at the port.”

He revealed that average demurrage charges were $ 8 and that three days of clearing time was given free of charge.

“Normally we give three clearing days free for different terminals, so they come at their own time and clear. If they get delayed, then they have to pay demurrage charges. Demurrage costs are $ 8 per day for a 20-foot container.”

Jayatissa noted that around 1,500 containers were cleared each day on average and that whatever was not cleared within 21 days was put on auction and sold.

“On average we clear about 1,200-1,500 containers every day. If there is any delay, after 21 days we put the goods on auction. The process is that after 21 days the terminal informs us, we inform the consignee to clear and give them notice, and then we inform Customs and together with Customs we do the valuation and then put it on auction. That is the standard procedure, nothing new.”

Import delays will impact entire economy: Economist

Advocata Institute Chief Operating Officer (COO) and Economist Dhananath Fernando told The Sunday Morning that import delays would affect the entire economy.

“As we all know, we are an import-dependent economy with 80% being intermediary goods and consumer goods and even in the consumable goods basket they are mainly essential food items and medicine. The other intermediary goods are required for exports and to produce other goods. If there is a delay in Letters of Credit (LCs), it’s going to have an impact across the board.”

He said that an increase in prices would be inevitable due to the delays. “When there are delays, the traders will try to keep an additional margin because of the knock-on effect. For example, if I’m a gas agent, when I know that the gas is not supplied on time, I will try to keep an extra margin – legally or illegally – as a means of survival. I took gas only as an example because you can’t keep a margin on gas as there is regulatory authority. But with other essentials the prices tend to go up and that is why there is food inflation and prices are increasing.”

He said price increases in food hikes would have a trickle-down effect on other industries such as tourism. “When food prices go up there is a domino effect with other industries as well. For example, restaurants and bakeries will get affected and some may close down and unemployment will go up as well. Tourism too will get affected because food is needed for hotels and restaurants and eateries. Food is a key factor in any economy. Even when it comes to construction, cement and other related imports will reduce and thus the construction sector, which is a big part of our economy, will not grow.”

He said one solution would be to let the rupee float so that those who were not bringing in their dollar earnings would be incentivised to do so.

“The solution is, I think at one point we have to reconsider keeping the dollar pegged at the current rate of Rs. 200. This drying happened because of this price control; those who have dollars are now not selling as they will be losing out given the price control of the dollar exchange rate. We will see a lot more dollars coming if this control is released.”

Nevertheless, he noted this would have its set of negative effects, adding that Sri Lanka would first have to face a few more challenges to turn things around.

“Of course, once the dollar exchange rate is released, there will be other effects such as fuel prices going up and our indicators will go up. Our debt to GDP ratio will go up. Our GDP numbers will come down. Those are the challenges of doing that. But the reason we call it a crisis is because there are bad choices and there are worse ones. Making any move at this point will result in some tough consequences.”