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2014/2015ANNUAL REPORT & ACCOUNTS

45th Annual General Meeting

ANNUAL REPORT

&

ACCOUNTS

2014/2015

ANNUAL REPORT & ACCOUNTS 2014/2015 01

SRI LANKA SHIPPERS’ COUNCIL

The Sri Lanka Shippers’ Council is the apex body representing Sri Lankan Shippers, which was

established in March 1966 to protect and promote the interests of shippers. It was the first National

Shippers’ Council to be set up in Asia and was formed on a request made in 1965 by the local

Committee of the Ceylon/Continental Conference, and a subsequent request made by the Director

of Commerce in January 1966, to the Ceylon Chamber of Commerce. The Council is also a founder

member of the Association of Shippers’ Councils of Bangladesh, India, Pakistan and Sri Lanka

(ASCOBIPS), founded in 1981 and the Asian Shippers’ Council, founded in 2004.

Membership of the Council consists of Chambers of Commerce, Trade Associations & individual

organisations. The Managing Committee of the Council only consists of PA’s with voting rights.

Currently, the Council represents a large percentage of the import/export trade in the country

through its broad based representation and membership of these trade Associations and individual

Companies.

The Council has now opened its doors to individual companies as Associate Members so that

companies in the import/export trade could have access to the Council’s resources and expertise

to resolve their shipping related problems.

The Sri Lanka Shippers’ Council is headed by an elected Chairman and assisted by two Vice-

Chairmen who are also elected by the constituent members.

The Ceylon Chamber of Commerce provides secretarial services to the Council and also acts as the

Secretariat.

The Council actively supports the Sri Lankan Government’s vision of making Sri Lanka the Logistics

Center in the Asian region, which would result in the generation of enhanced economic activity,

employment and wealth. As such all Council activities have been planned and prepared to support

this vision and to facilitate International trade.

02 ANNUAL REPORT & ACCOUNTS 2014/2015

OUR VISION

“To enhance the competitiveness of our members by abolishing hidden logistics costs.”

OUR MISSION

1. We facilitate our customers to be more competitive in their Business Logistics; performance and cost, by the following;

2. Being the APEX Body, protect the interest of our customers and being a strong Advocate to the Government.

3. Ensuring cost effective strategies are developed and implemented in the logistics and value chain to make our members more competitive.

4. Facilitating greater efficiencies in logistics by reducing logistics barriers and simplifying trade.

5. Acting as the mediator in resolving conflicts amongst our customers (members).

6. Facilitating a level playing field by developing and promoting a code of conduct / ethics for our customers (members).

7. Establishing a centre for excellence for information sharing and to upgrade competencies of members to compete globally.

8. Leveraging regional and global partnerships and facilitating global best practices in logistics in Sri Lanka.

It is the Council’s firm belief that in order to be competitive with the international market Sri Lankan shippers should;

a. Have a clear understanding when deciding on Carriers /Freight rates and be clear and free of any ambiguity with regard to the Freight rates and matters prevailing in the Market.

b. Have freight and associated costs stabled, particularly for traditional exports such as tea, rubber, coconut products, which account for at least 70% of total export volume out of Sri Lanka. A major part of the turnover of these exports in foreign exchange is retained in the country and it is vital to protect these industries from international competition. Furthermore, these commodities are with relatively low margins and usually with forward trading patterns cannot absorb constant and continuous cost escalations.

c. Concurrently are the major exports such as garments are usually traded on FOB terms and the local manufacturers are constantly under pressure to provide low priced services, thus are unable to absorb any additional charges keeping in mind that almost all material for these industries are being imported. Therefore the constant increases in charges could seriously affect such industries as they are called upon to pay these charges both at the point of import of raw materials and export of finished products.

d. Have reasonable Service providers who would not take undue advantage from their captive customers.


OUR OBJECTIVES AND KEY BENEFITS TO MEMBERS

1. To provide for consultation/dialogue between shippers and Ship-owners/ Conference Lines/Shipping Agents/Airlines/Airline Agents, Sri Lanka Ports Authority/ Customs and Government on matters of common interest;

2. To bring together the representatives of various shippers’ associations, trade and industrial associations/organizations, for consideration and discussions of the problems affecting shippers in Sri Lanka;

3. To represent the views of shippers in regard to the composition of freight rates, availability and adequacy of shipping space and services including sailings / flights. Port/ Customs efficiency. Adequacy of Ports and Customs facilities and / charges

4. The Council in principal will not come into agreement on behalf of its members in relation to freight contracts. (The Council will encourage confidential shipper/carrier freight negotiations) However, if the circumstances necessitate negotiation and entering into agreements with ship owners/Conference Lines/Shipping Agents/Airlines/Airline Agents on matters affecting shippers, which involve general principles and policies or on such other matters, if referred to the Council, upon receipt of such matters, the Council will act to safeguard the interest of the shipper/Country.

5. To undertake research/studies on problems affecting shippers in Sri Lanka.

6. To circulate information and statistical data and to publish newsletters, brochures etc., for the benefit of shippers.

7. To convene independently or jointly with other organizations, conferences, seminars or meetings in furtherance of the objectives of the Council;

8. To accept any grants, gifts or donations whether in cash or securities and any property either movable or immovable and/or give any grants etc., in the furtherance of the objectives of the Council;

9. To make Rules, Regulations or Bye-Laws for the conduct of the affairs of the Council and to add, to amend, vary or rescind them as from time to time;

10. In the interest of the shippers, the Council will wherever possible nominate its members to institutions where key functions in the shipping industry are taking place.

11. The Council will closely work with international Shippers’ Councils in order to interact and pass on information that could be beneficial for shippers and the country.

12. To take all such other steps as may be necessary or conducive to the interests of the Councils’ members.


THE COUNCIL

Mr. Sean Van Dort

Chairman

Mr. Nalin Silva

1st Vice Chairman

Mr. Chrisso de Mel

2nd Vice Chairman

HONORARY MEMBERS

Mr. S.S. Jayawickrama

OBSERVER

The International Chamber of Commerce

SECRETARY GENERAL

Mr. Mangala P.B. Yapa

SECRETARIAT

The Ceylon Chamber of Commerce


MEMBERSHIP – 2014/2015

TRADE ASSOCIATIONS

The Ceylon Chamber of Commerce Mr. Adrian Oswald Import Section (Representative)

Mr. Nishan Nanayakkara (Alternate)

Joint Apparel Association Forum Mr. Sean Van Dort (Representative)

Mr. Suren Abeysekera (Alternate)

The Colombo Rubber Traders’ Association Mr. Nalin Silva (Representative) Mr. Talal Shums (Alternate)

The National Chamber of Commerce Mr. Sujeeva Samaraweeraof Sri Lanka (Representative)

Mr. Tissa Ruberu (Alternate)

The Ceylon Coir Fibre Exporters’ Association Mr. Wasaba Jayasekera (Representative)

Mr. N. Ramanathan(Alternate)

The Ceylon Chamber of Commerce Mr. Chrisso de Mel (Representative)

Mr. Russel Jurianz(Alternate)


The National Chamber of Exporters’ Mr. Rasa Weerasinghamof Sri Lanka (Representative until December 2014)

Mr. Shiham Marikar(Representative from December 2014 and up to now)

Mr. Parakrama Dissanayaka

(Alternate) The Sri Lanka Freight Forwarders’ Mr. Dushmantha KarannagodaAssociation (Representative)

Mr. Tony De Livera (Alternate)

The Sri Lanka Apparel Exporters’ Mr. Ajith JayasekaraAssociation (Representative)

Mr. Naren Vanigasooriyar (Alternate)

Sri Lanka Association of Air Express Mr. Dimithri PereraCompanies (Representative) Mr. Rushan Samaraweera

(Alternate- Until March 2015)

Sri Lanka Logistics Providers’ Association Mr. Stanley Samarakoon (Representative)

Mr. B L Rohitha (Alternate)

Tea Exporters’ Association Mr. Shiral Fernando (Representative)

Ms. Chintha De Zoysa(Alternate)

Sri Lanka Fruits & Vegetable Producers, No Representative Processors & Exporters’ Association


INDIVIDUAL MEMBERS

Agility Logistics (Pvt) Ltd

Ansell Lanka (Pvt) Ltd

Anverally & Sons (Pvt) Ltd

Canro Exporters

Care Logistics (Pvt) Ltd

Ceylon Tea Marketing (Pvt) Ltd

City Cycle Industries

Civaro Lanka (Pvt) Ltd

CL Synergy (Pvt) Ltd

Control Union Inspections (Private) Limited

20Cube Logistics (Pvt) Ltd

Fascination Exports (Pvt) Ltd

Fanam International (Pvt) Ltd

Freight Links International (Pte) Ltd

Freight Masters International Pvt Ltd

Finlays Colombo PLC

Hayleys PLC

HDDS

Hela Clothing (Pvt) Ltd

Hellmann Worldwide Logistics (Pvt) Ltd

Imperial Teas (Pvt) Ltd

Jiffy Products S.L. (Pvt) Ltd

Leading Lady Intimates Lanka (Pvt) Ltd

MAC Supply Chain Solutions (Pvt) Ltd

Mabroc Teas (Pvt) Ltd

Neil Fernando & Co. (Pvt) Ltd

Nestle Lanka PLC

Orient Garments Ltd – Until October 2014

Riston Teas (Pvt) Ltd

Romina General Trading Company

SALOTA International (Pvt) Ltd

Shermans Logistics (Pvt) Ltd

Singworld Lanka (Pvt) Ltd

Scanwell Logistics Colombo (Pvt) Ltd

Tea Tang Ltd

Timex & Fergasam Group (PvT) Ltd

Universal Freighters International (Pvt) Ltd

Van Rees Ceylon Ltd


THE SRI LANKA SHIPPERS’ COUNCIL AGM 2014/2015

Seated from Left to Right

Ms. Manjula Maldeniya (Secretariat), Mr. Rohan Masakorala (Past Chairman), Mr. Nalin Silva (1st Vice Chairman), Mr. Sean Van Dort (Chairman), Mr. Dinesh De Silva (Immediate Past Chairman), Mr. Chrisso de Mel (2nd Vice Chairman), Mr. Randolph Perera (Past Chairman), Ms. Manori Dissanayaka, (Secretariat)

Standing from Left to right

Mr. Gehan Kuruppu (Past Chairman), Mr. Ajith Jayasekera (Sri Lanka Apparel Exporters’ association), Mr. Tony De Livera (Sri Lanka Logistics & Freight Forwarders’ association), Mr. Russel Juriansz’ (The Ceylon Chamber of Commerce), Mr. Adrian Oswald (The Ceylon Chamber of Commerce – Import Section), Mr. Shiral Fernando (Tea Exporters’ Association), Mr. N. Ramanathan (The Ceylon Coir Fibre Exporters’ Association), Mr. Rasa Weerasingham (National Chamber of Exporters), Mr. Dimithri Perera (Sri Lanka Association of Air Express Companies), Mr. Stanley Samarakoon (Sri Lanka Logistics Provider’s’ Association), Mr. Sujeeva Samaraweera (The National Chamber of Commerce of Sri Lanka), Mr. Tissa Ruberu (The National Chamber of Commerce of Sri Lanka), Mr. Noel Priyatillake (Past Chairman)


HIGHLIGHTS OF 2014/2015 AGM

Welcoming the Chief Guest, Dr. P. B. Jayasundara, Secretary to the Treasury, Ministry of Finance & Planning and Economic Development

Head Table: from left to right: Mr. Sean Van Dort (Chairman SLSC), Ms. Manori Dissanayaka (Secretariat, CCC), Mr. Dinesh De Silva (Immediate Past Chairman SLSC), Mr. Nalin Silva (1st Vice Chairman, SLSC), Mr. Chrisso de Mel (2nd Vice Chairman)


OFFICE BEARERS

Sri Lanka Shippers’ Council held its 44th Annual General Meeting on the 27th June, 2014, followed by “the Post Business Session” and cocktails. The Chief Guest at the occasion was Secretary to the Treasury, Ministry of Finance & Planning and Economic Development, Dr. P.B. Jayasundara who delivered the keynote address. Mr. Ashroff Omar, CEO of Brandix Lanka limited was the Guest of Honour. Mr. Sean Van Dort elected as the Chairman for the year 2014/2015. Thereafter, Mr. Nalin Silva and Mr. Chrisso de Mel were elected as 1stVice Chairman and 2nd Vice Chairman respectively. Mr. Dinesh De Silva stepped down as the Chairman of the Council after completing 2 successful years in the said capacity.

ACTIVITIES OF THE COUNCIL

The activities of the Council have been focused on issues faced by shippers on shipping and their operational activities. The Council always performed a lead role in resolving problems and serve as the focal point where various shipping and port, Airport & other authorities’ related matters are brought up and discussed. In addition, the Council largely contributes in advising the Government authorities on matters relating to port and shipping whenever its advice is sought after.

The following ten (10) action committees were appointed for better co-ordination and guidance purposes:

• Shipping and Logistics related Matters • Present Market Indicators - Freight Rates/ Courier rates • Customs/Sri Lanka Ports Authority/Maritime Affairs• Airport Issues• Education and Seminars• Membership Drive, Fund Raising & Finances/Accounts• SLSC Constitution• Asian Shippers’ Council (ASC)• Global Shippers’ Forum (GSF)• SLSC Website

A detailed description of the activities of the Council appears elsewhere in this report. However, in this section for your easy reference we give below the main topics covered in the report.

• Shipping Surcharges• Present Market Indicators - Freight Rates/ Courier rates • Electronic Data Interchange (EDI)• Sri Lanka Customs• Sri Lanka Ports Authority• Asian Shippers Council (ASC) & Global Shippers’ Forum (GSF) • Education and Seminars


SHIPPING SURCHARGES

Matters relating to the Gazette Extraordinary No 1842/16 of 27/12/2013 Regulation

New Notices and Guidelines on Extraordinary Gazette Notification no 1842/16 of 27/12/2013 were issued by the Director General of Merchant Shipping.

During the year under review, the Council participated meetings of the “Working Group Meeting” set up by Ministry of Finance & Planning to discuss concerns related to the Gazette notification. (Gazette Extraordinary No. 1842/16). Initial meetings were chaired by Dr. P B Jayasyndara, Secretary to the treasury and later on the meetings were convened by the Director General of Merchant Shipping to address the concerns raised by the stakeholders.Consequent to the discussion had at the Working Group meetings, The Director General of Merchant Shipping (DGMS) issued a notice on 25th April 2014 informing the trade of a maximum charge of Rs. 6,000 per delivery order with effect from 30/04/2014. Warning letters were issued by the DGMS to the service providers charged higher DO fees.

New guideline was issued on 11/08/2014, by the Director General of Merchant Shipping as follows to clear the procedure;

Quote

“Guidelines issued under Section 7 of the Licensing of Shipping Agents Act No. 10 of 1972 as Amended read with Regulation 9 of the Gazette Extraordinary 1 847/53 dated 31.01.2014 on the Regulations 4 and 5 of the Gazette Extraordinary 1842/16 dated 27.12.2013

By virtue of powers vested in me under Section 7 of the Licensing of Shipping Agents Act No. 10 of 1972, as amended and the Regulations published under the provisions of the said Act, following guidelines are issued for compliance by the licensed service providers referred to above.

Having regard to the submission made by relevant associations representing both service providers and service users in respect of my notice dated 25/04/2014 relating to the Delivery Order fee is hereby cancelled.

It has now been decided that with immediate effect, ‘the quantum of the Delivery Order fee that could be charged by a service provider from an importer in Sri Lanka shall be at the rate filed at my office, when such service provider applied for renewal or granting of its 2014 operating license’. No other charge, levy or consideration shall be imposed.

Any service provider who is desirous of either introducing a new Delivery Order fee or increasing the already filed rate is required to submit all supporting documents for the purpose of verification on such proposal for my consideration as per the provisions of the Regulations.


The Supporting documents shall include all documents but not limited to the documents herein mentioned;

1. A clear business rationale justifying the introduction of a new rate or increase of the filed rate prepared by a Chartered Accountant

2. Documents proving financial status and tax compliance of the company 3. Proof of payments of Corporate Income Tax 4. Specific details on Delivery Order fees as listed below includes:

i. Delivery Order fees if any paid by the applicant, ii. Delivery Order fees recovered from the importers, iii. The above details shall be submitted separately on FCL cargo and LCL cargo handled

by the applicant during the 12 months period reckoned backward from the date of request for review or for introduction of a new rate,

iv. Any other documents that will support the said proposed increase

The above request for documents is done without prejudice to the power of the Director General of Merchant Shipping to investigate for further documents and to conduct an oral inquiry where necessary.

All licensed service providers are requested to be guided accordingly and any licensed service provider who acts in contravention of the above will be dealt under the existing law, and in particular attention is hereby drawn to Section 11 of the licensing of Shipping Agents Act no. 10 of 1972.

These Guidelines will come into force with immediate effect. ’’

Unquote

According to DGMS above guidelines, service providers should adhere to the charges filed with DGMS. According to Sri Lanka Logistics and Freight Forwarders’ Association (SLFFA), their members tend to charge DO fee and liner DO recovery (liner DO fee). This matter was taken up with the Secretary to the Treasury (ST) and it was suggested that SLFFA, Ceylon Association of Ships Agents (CASA), Ceylon Freight and Logistics Associations (CEYFFA) and SLSC to come up with a proposal to resolve this liner recovery DO charges/ excess DO fee.

Consequent to the new regulation on local charges per Extraordinary Gazette Notification No. 1842/16 of 27th Dec 2013, the stakeholders of the Shipping and Freight industry have had many meetings and discussions with the Government authorities as well as those amongst the stakeholders, in order to address the issue relating to very high Delivery Order Fees and other charges that varied drastically from one service provider to another due to various reasons.

On the instructions of then Secretary to the Treasury, the key personnel representing both service providers and service users held several discussions, with a view to arriving at a consensus on what the ideal / maximum Delivery Order Charges should be.


As a result of those discussions, the following were proposed and agreed upon, by the SLFFA, CASA, CEYFFA, JAAF and SLSC;

• To apply on final Consignee a maximum Delivery Order Fee of Rupees 7,500 per Bill of Lading on FCL imports that arrives under ‘freight prepaid’ terms, subject to Govt. Taxes.

• To apply on final Consignee a maximum Delivery Order Fee of Rupees 10,000 per Bill of Lading on LCL imports that arrive under ‘freight prepaid’ terms, subject to Govt. Taxes.

• No other Fees or Charges, other than Delivery Order Fees and relevant Taxes, should be applied on shipments that arrive in Sri Lankan Ports under ‘freight prepaid’ terms.

• The Service Providers however reserve the right to collect their dues / fees for any special services that they may offer on the request of the consignee and to recover the repair cost of equipment in case the container is returned in damaged condition.

• The undersigned Associations will work closely and assist the Director General – Merchant Shipping to streamline the local charges and to take disciplinary action against those who do not comply with given guidelines on freight pre-paid shipments moving into Sri Lanka

The above collectively signed copy of the proposal was handed over to DGMS on 02nd February 2015 by SLFFA, CASA and CEYFFA.

The proposal was discussed in depth as to how this could proceed to implement the new D/O Fee, and finally, advised DGMS to send a circular to the trade requesting all service providers to file their D/O Fees, as the same was not requested at the time of renewing the Licenses, and also to conform to the request of the service users for a single line D/O Fee.

DGMS was advised to notify the trade accordingly.

According to SLFFA, this proposal is only a guideline to the DGMS, a common understanding of the majority of the stakeholders that the maximum DO fee for FCLs and LCLs would be the amounts mentioned in the proposal.

STRUCTURAL CHANGE IN SURCHARGES INAIR FREIGHT INDUSTRY

AIRLINE’S OFFERING “ALL-IN” CARGO RATESDuring January 2015, some airlines freight divisions have announced their policy to return to a simplified “all-in” rate structure that eliminates the various surcharges e.g. fuel, security etc., The simplification of rate structures would be a significant benefit to forwarders and shippers alike. Forwarders have for a very long time desired these surcharges be removed as they were opaque and complex and thereby making it difficult to quote a definite price for air cargo transportation, which the shippers were able to understand.

Issuing a statement by FIATA, the International Federation of Freight Forwarders Associations stated that the fuel surcharge has come under significant criticism in recent months as fuel prices continue to fall. FIATA believed this is a long-awaited move in the right direction that may be supportive of transparency. Transparency in the entire Supply Chain is generally applauded by FIATA, its members and by the International Freight Forwarders client.


PRESENT MARKET INDICATORS

FREIGHT RATES

The year under review saw Export freight rates declining once again towards the last quarter (April - June 2015). The main reason being that the Colombo port still having an excess capacity of space well over demand. It was also noted that several new services were launched during this period, giving shippers the comfort of having more options.

Also during the year, it was observed that there were several GRIs that were imposed in the second and third quarter mainly due to the unusual buildup of demand both through local exports as well as with huge transshipment volumes where shipping lines also took the advantage to create an artificial demand by a few void calls as well as down grading the vessels creating an excess demand for space in the market. Overall the local shippers continue to have the advantage of better freight rates when compared with other origins in the region. However the problem of poor quality equipment remains to be in the agenda of discussion with very little improvement.

There had not been significant fluctuations in import freight rates, during the year under review, there were few increases in freight rates experienced for cargo imported from China, during seasonal and peak times, which has remained only for a very short period. However, the overall situation had been favorable to importers, this situation could be attributed to the excess capacity of space .

COURIER RATES

With regards to the Courier rates, in the beginning of year 2013, the fuel surcharge was 24% but rates have been fluctuated by +/- during the course of the year. During the first quarter of the year 2014, the rates have come down to 23.5%. The fuel surcharge is linked to the Rotterdam price index.

FUEL SURCHARGE

As you are aware, global fuel prices have been fluctuating for the past few years. It is envisaged that these prices will continue to fluctuate in the foreseeable future, as such, most air express companies have introduced a fuel surcharge to defer part of their increased transportation costs. Most companies use the Monthly average spot price of the United States Gulf Coast Kerosene-type Jet fuel to calculate a fuel surcharge and for easy reference you may click USGC Kerosene-type Jet Fuel Spot Price to access the source data. There may however be marginal differences among the rates applied by air express companies globally due to time lags in implementation and differing cost structures.

Month SurchargeJuly 2015 13.5%June 2015 12.0%May 2015 11.5%

http://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm

http://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm


There will be a two month lag in the application of the index. For example, the monthly average price for fuel in January is used to determine the applicable surcharge for March. This is due to the release dates of the spot pricing data.

The applicable fuel surcharge charged by various companies will be notified to customers by their respective service providers. Air Express users are encouraged to use this table as a guide to the trend in fuel movements and for better understanding of it’s application. (Source: SLAAEC)


ELECTRONIC DATA INTERCHANGE (EDI)

SRI LANKA CUSTOMS EXPORT FACILITATION CENTRE (EFC)

The Long awaited e-Commerce facility for the export industry is now available on a 24x7 basis through Sri Lanka Customs’ Export facilitation Centre

In the last quarter of 2014, the Sri Lanka Customs Department initiated a new trade facilitation tool by providing Sri Lanka’s first Export Trade Facilitation Centre (EFC) at the port access road to enhance its automation process by reducing operational activities of exporters. The System is mandatory and each export containers has to go through the new system, which is fast, hassle-free and transparent. Sri Lanka Shippers’ Council issued a press release in on 19th September congratulating the Sri Lanka Customs initiative to facilitate exports.

Less paper, less work and lower costUnder the E- Customs initiatives the one stop Export Facilitation Centre was established so that the exporter now do not need to visit Customs Department unless otherwise there are special licensed products to process through the Customs export declaration.The department has introduced electronic warranting, e-Cargo Dispatch Note, e-payment, and e-terminal information. These processes have reduced the number of copies from 18 to 1 or 2 maximum.

In addition the EFC further reduces documents, number of movements of wharf representatives and customs officers, panel examinations, provide faster export clearance, boat note passing, operations & charges etc. BOI Companies too can now pass the final port clearance at this location and avoid entering the SLPA to do the same operations.


The new processes, have reduced time, resources and taken away hidden costs, which many are not willing to talk about from the trade as they know they were doing the wrong process for many years by using speed money as a tool, which costs export companies dearly as petty cash.

Sri Lanka Shippers’ Council was a part of the team which worked closely with the Customs for over two years in getting the system and the automated transaction process done. During the year under review, the Council had several meetings with Sri Lanka Customs officials to resolve operational issues at EFC encountered by the members and the trade.

In addition, the Council is following up with Sri Lanka Customs requesting to fully implement the following facilities at EFC to further facilitate the trade.

• Drive-through facility• E-warranty of CusDec• Electronic Panel Examination• Green Channel Facility for exports

SRI LANKA CUSTOMS

The Council is pleased to announce that the dialogues with the Sri Lanka Customs continued, during the year under review. Concerns of the Importers and Exporters with regard to various policy matters and operational issues were brought to the attention of the Director Genaral Customs and received positive responses to solve large number of issues during this period. Some of the issues highlighted were;

• Operational issues at SL Customs Export Facilitation Centre• To open up Customs payment gateway to all private banks• Amendments needed for electronic Cargo Dispatch Note ( e-CDN)• Request for Customs OT payment online• Submission of Import Cargo Manifest Electronically• Customs preventive on export manifest issues• Criteria for Import/Export samples• Destructions of branded items sent to Holcim


SRI LANKA CUSTOMS 24X7 OPERATION

The 24×7 operation of the Sri Lanka Customs were launched with the interim budget proposals by the Hon. Minister Ravi Karunanayake along with the support of all liner agencies including main stake holders like Sri Lanka Ports Authority, banks, etc. All line agencies need to support the 24×7 with extended working hours in order to have a successful operation. This initiative will reduce transaction time and cost and would help exporters / importers to meet their stringent delivery schedule. Customs operate 24-hours for processing of documents for imports, export up to the end of operation. Sri Lanka Shippers’ Council participated several discussions at Sri Lanka Customs to resolve operational issues of this system.

SLSC Executive Committee met with Hon. Minister Ravi Karunanayake, Minister of Finance to discuss the industry issues

SRI LANKA PORTS AUTHORITY

During the course of 2014, SLSC has had very productive round table discussions with the SLPA to discuss various issues pertaining to the industry. Some of the issues highlighted were; some of the issues highlighted were; shortage of equipment, shortage of space in warehouses, delays in de-stuffing of LCL cargo within 24 hours, request to link online payment with all banks, to clear Dangerous Cargo after 4.30 p.m.

A joint press release was issued expressing concerns over the strike carried out by the truck operators blocking IN and OUT gates of Sri Lanka Ports Authority. Import Section urged the Sri Lanka Ports Authority and Ministry of Ports & Shipping to have an amicable & speedy solution.


SLSC Executive Committee made a courtesy call to the newly appointed Port Chairman, Dr. Ladas Panagoda

THE ASIAN SHIPPERS’ COUNCIL (ASC)

THE ASIAN SHIPPERS’ COUNCIL ANNUAL MEETING

The ASC AGM scheduled to be held in October 2014 in Sri Lanka was cancelled issuing a notice by Mr. Toto Dingantoro, Chairman of ASC.

In January 2015, the Council was made aware of a new Shipping Alliance called “Asian Shippers Alliance’’ (ASA) formed joining ASC and ASM. When enquired from the current ASC Chairman, he had confirmed that this alliance was formed at an informal meeting held on 12 September 2014 in Thailand with the participation of Thailand National Shippers’ Council (TNSC), Hong Kong Shippers Council (HKSC) and European Shippers’ Council (ESC)

SLSC was invited to participate ASA’s first Annual meeting scheduled in March 2015 in Surabaya. The Council decided not to participate at this juncture.

THE GLOBAL SHIPPERS’ FORUM (GSF)

Sri Lanka Shippers’ Council has become a member of the Global Shippers Forum in April 2015.

The Annual General Meeting of the Global Shippers’ Forum took place from 2 to 4 June 2015 in Toronto. Over 35 delegates attended from shipper councils including those representing Canada, Germany, Hong Kong, Korea, South Africa, Sri Lanka, Thailand UK, US and other observer shipper associations. There were also representatives from numerous countries in the membership of the Union of African Shippers’ Councils as well as individual shippers taking part in the meeting. The


SLSC was represented by Mr. Sean Van Dort, Chairman at this event.

The meeting discussions included:

1. Actions for a global surcharges campaign for ‘all in’ container shipping and air cargo rates and to identify regulatory approaches to improve shippers bargaining power

2. The new joint BIMCO/GSF standard container contract and how the contract can be used by small and medium sized shippers to enhance their bargaining power

3. Verification of container gross mass weights with GSF best practice advice and activities to assist members with implementation

4. Anti-trust reforms in Australia and New Zealand, and current reviews in Singapore and Hong Kong of anti-trust immunity and other enforcement activities, including the European Commission price signalling case

5. GSF’s involvement in International Maritime Organization policy work on shipping emissions

6. An air cargo session to raise awareness of how shippers and carriers are working together to promote sustainable air cargo

Speakers at the meeting included:

• Dawn Desjardins, Assistant Chief Economist, Royal Bank of Canada

• Stephen Brooks, President, Chamber of Marine Commerce

• US Federal Maritime Commissioner, Honourable Michael A Khouri

• Sam Brand, International Civil Aviation Organization

• Celine Hourcade, International Civil Aviation Organization

• Jan Hoffman, Environmental Office, UN Committee for Trade and Development

The meeting also included a freight and logistics field trip to see some unique Canadian logistics operations, including the Welland Canal and freight operations at the Port of Hamilton on Lake Ontario.

At this meeting Sri Lanka Shippers’ Council invited next GSF Annual meeting to be held in Sri Lanka. The GSF Council agreed that the 2016 Annual Meeting would take place in Sri Lanka following the invitation of the Sri Lanka Shippers’ Council who offered to host it.


FEDERATION OF ASEAN SHIPPERS’ COUNCILS (FASC)

There were no significant activities under FASC after the AGM held in New Delhi 2008.

EDUCATION & SEMINARS

SLSC- CINEC SCHOLARSHIP PROGRAM FOR LOGISTICS AND TRADE INDUSTRY

Colombo International Nautical and Engineering College (CINEC) offered four scholarships to employees of SLSC membership who are involved in logistics, freight forwarding and supply chain to excel in higher education and enhance their career prospects on those fields.

Scholarships on offered were as follows;

1. Professional Diploma In Freight Forwarding2. Certificate in Logistics Services, Freight Forwarding and Multimodal Transport

(Course approved by Ministry of Ports, Highways and Shipping)

SEMINAR ON CUATOMS PROCEDURES ON IMPORT & EXPORTS & THE PROPER USE OF INCOTERMS, JANUARY 2015

The National Chamber of Exporters in association with Sri Lanka Shippers’ Council conducted the above training programme to brief on SL customs current import export procedure and the correct use of INCOTERMS. The keynote address was delivered by Mr. Sean Van Dort, Chairman of Sri Lanka Shippers’ Council. Sri Lanka Customs Deputy Director Revenue and Services N Ravindrakumar, Sri Lanka Customs Additional Director General Revenue and Services M Puviharan participated at the panel.


LOGISTICS & TRADE FORUM ON “SRI LANKA CUSTOMS EXPORT FACILITATION CENTRE” (EFC), APRIL 2015

The Shippers’ Academy Colombo together with the Sri Lanka Shippers’ Council organised a Logistics Forum To Educate Exporters, Shipping, Clearing House, Wharf, And Transport And Logistics Companies at the Sri Lanka Foundation Institute. The Forum discussed operational issues and ways to further improve facilities in connection with EFC.

Speaking at the forum, Sean Van Dort, Chairman Sri Lanka Shippers’ Council said implementation of EFC is a dream come true for the export sector and the service providers. It was a long process and a lot of hard work;

A field visit to the EFC was organised by the Council on 22nd May 2015 to familiaraise with the operation and the procedure at the EFC.

TRADE COMPLAINTS

The Council continues to facilitate the trade by assisting in the mediation of trade disputes among the shipping lines, freight forwarders, NVOCC Operators, and shippers.

REPRESENTATIONS

The Council continues to maintain its close association with the Government and Private sector organizations and also with the Trade Associations with a view to have a continued improvement on the required service levels.

Some highlighted direct representations made during the year were as follows;

• EDB Advisory Committee on Trade Facilitation

• Representations at the Leadership of the Approved Associations meetings of the Ceylon Chamber of Commerce


• Representations at the Steering Committee on Ports, Shipping, Aviation & Logistics of Ceylon Chamber of Commerce

• Meeting with Stakeholders of the Shipping Industry, the Ceylon Chamber of Commerce

• Working Group Meeting set up by Ministry of Finance & Planning to discuss the implementation on the Extraordinary Gazette No 1842/16 on Terminal Handling and Other Charges

THE CEYLON CHAMBER OF COMMERCE (CCC)

The Chairman of the Sri Lanka Shippers’ Council is a member of the Committee of the Ceylon Chamber of Commerce, the oldest Chamber in Sri Lanka with a history of over 175 years. The Council members have had several meetings with the Chamber officials on policy matters relating to port and shipping.

MEMBERSHIP

The membership of the Council is open to all Trade Chambers and Associations engaged in Shipping and Port related activities as well as individual companies in the import/export trade. The membership committee is responsible for developing and increasing the membership of the Council. During the year under review, the Council approved membership for the following companies/organizations as Individual Members:

1. Scanwell Logistics Colombo (Pvt) Ltd

2. 20Cube Logistics Pvt Ltd

3. Leading Lady Intimates Lanka (Pvt) Ltd

4. Universal Freighters International Pvt Ltd

5. Freight Masters International Pvt Ltd

6. Fanam International (Pvt) Ltd

7. SALOTA International (Pvt) Ltd

FINANCE

The Ceylon Chamber of Commerce manages the Council funds on behalf of the Council.

WEB SITE

www.shipperscouncil.lk

Shippers’ Council website was revamped with a new outlook. The site is regularly updated with trade related information and hosts value added services.

http://www.shipperscouncil.lk


SECRETARIAT

The Ceylon Chamber of Commerce provides Secretarial services to the Council. The infrastructure of the Chamber is readily available to the Council.

BY THE ORDER OF THE COUNCIL

Sgd.Manori Dissanayaka

For Secretary

THE SECRETARIATSri Lanka Shippers’ Council

C/o. The Ceylon Chamber of Commerce 50, Nawam Mawatha, Colombo 2

Direct Tel:+94 11 2392840, 5588871, 5588880

General Tel: +94 11 2421745-7, 5588800 Fax:+ 94 11 2449352, 2437477

E-mail: [email protected]

Website: www.shipperscouncil.lk

Tel:+94

mailto:[email protected]


OVERVIEW OF THE ECONOMY

ECONOMIC GROWTH

In 2014, the Sri Lankan economy showed its resilience in the face of domestic as well as external challenges. Real GDP grew by 7.4 per cent in 2014, in comparison to the growth of 7.2 per cent in 2013. Accordingly, GDP per capita increased to US dollars 3,625 in 2014 from US dollars 3,280 in the previous year. The economy was driven by domestic consumption expenditure that constitutes the largest share of aggregate demand, while investments, particularly on construction, also provided an impetus to the economic expansion during the year. On the production side, the Industry and Services sectors continued to perform well, while adverse weather conditions dampened the performance of the Agriculture sector during the year. Inflation remained at single digit levels for the sixth consecutive year, with year-on-year and annual average inflation declining to 2.1 per cent and 3.3 per cent, respectively, by end 2014, from 4.7 per cent and 6.9 per cent, respectively, at end 2013. Prudent monetary policy as well as the considerable decline in global commodity prices in the second half of the year enabled the deceleration of inflation to low single digit levels during the year. In spite of the relatively relaxed monetary policy stance, the effect of declining pawning advances as a result of lower international gold prices shrouded the pickup of credit obtained by the private sector, particularly in the first seven months of the year. In the absence of demand pressures on inflation, the Central Bank took measures to facilitate further credit disbursements by banks. However, these measures, along with volatile global conditions, caused some portfolio investment outflows and encouraged imports, increasing the pressure on the external sector and the exchange rate towards the latter part of the year. Overall, the trade deficit widened in nominal terms during the year, although inflows from trade in services and workers’ remittances supported the

reduction of the deficit in the current account. This, together with other financial inflows, helped strengthen the balance of payments (BOP), and hence gross official reserves. The continued inflow of funds from the expatriate workforce in the form of remittances and investments aided an increase in national savings, which helped reduce the savings-investment gap. Meanwhile, in the fiscal sector, despite the government’s announced commitment towards fiscal consolidation, the overall fiscal deficit increased to 6.0 per cent of GDP in 2014 from 5.9 per cent of GDP in the previous year, mainly as a result of the continued shortfall in revenue collection. Nevertheless, central government debt as a percentage of GDP declined to 75.5 per cent by end 2014 from 78.3 per cent by end 2013. In the financial sector, the strengthened regulatory and supervisory framework, improved risk management capabilities and adequate buffers to mitigate risks, enabled financial institutions to remain resilient during the year.

Going forward, the Sri Lankan economy is projected to reach upper middle income levels and sustain the favourable high growth and low inflation nexus in the medium term, supported by appropriate economic policies. The new government is expected to uphold policies of good governance and transparency, which would support a high growth path through an improved investor friendly environment. The government faces the enormous task of articulating a coherent medium term policy framework, which enhances positive effects while addressing possible shortcomings of previously announced policies as well as the challenges ahead. Some of these challenges are, the urgent need to address the continued decline in government revenue as a percentage of GDP in order to achieve a better fiscal balance; increasing productivity of all sectors of the economy, including the public sector; raising resources required for sustained growth


through non debt creating sources, in particular, foreign direct investments (FDI); developing appropriate pricing policies for public utilities; better identification of beneficiaries in implementing social safety nets and subsidy programmes; improving the equity and quality of health and education service provision; addressing the issue of public transportation; continuing physical infrastructure development on a sustainable basis; formulating policies to address the challenge of aging population including improving labour productivity and promoting the development of superannuation and insurance products; and, improving the doing business environment and policy predictability. Addressing such challenges would be essential to realise the projected growth path as envisaged, enabling the economy to achieve its full potential while maintaining macroeconomic stability in a more equitable environment.

The Sri Lankan economy achieved a real GDP growth of 7.4 per cent in 2014 in comparison to 7.2 per cent in 2013. Amidst diverse developments in the global economy, continued domestic economic activity helped sustain the growth in the Industry and Services sectors. The Services sector, which represents 57.6 per cent of GDP, grew by 6.5 per cent in 2014 compared to the growth of 6.4 per cent in 2013, with significant contribution from Wholesale and retail trade, Transport and communication, and Banking, insurance and real estate sub sectors. The share of the Industry sector within GDP increased further to 32.3 per cent, with a sectoral growth of 11.4 per cent in 2014 compared to 9.9 per cent in the previous year. The Construction sub sector recorded the highest contribution to the growth of the Industry sector, while Food, beverages and tobacco and Textile, wearing apparel and leather sub sectors within Factory Industry also made substantial contribution to growth. Meanwhile, affected by adverse weather conditions, the Agriculture sector, which

represents 10.1 per cent of GDP, contributed only marginally to real GDP growth. The growth of the Agriculture sector was 0.3 per cent in 2014, compared to 4.7 per cent recorded in the previous year.

The expansion in both investment and consumption activities supported the growth of GDP in 2014. As per the expenditure approach, increased investment expenditure was due to both private and public sector investments. The growth in private consumption expenditure was supported by lower domestic interest rates and higher disposable incomes. As a result, expenditure on imports of consumer goods increased significantly. Higher contribution from the growth in imports relative to exports, however, resulted in a marginal deterioration of net external demand in nominal terms during the year.

Domestic savings improved to 21.1 per cent of GDP in 2014 from 20.0 per cent in the previous year. The improvement in domestic savings during the year was due to the continuous expansion in private savings amidst an increase in government dissaving. National savings improved to 27.0 per cent of GDP as a combined result of continued inflows in the form of workers’ remittances and the deceleration in the negative growth of net factor income from abroad (NFIA) compared to the previous year. These developments contributed to a narrowing of the savings-investment gap to 2.7 per cent of GDP in 2014 from 3.7 per cent of GDP in 2013.

The Agriculture sector grew marginally by 0.3 per cent in 2014 reducing its share in GDP to 10.1 per cent from 10.8 per cent in 2013. Impacted by adverse weather conditions, several key sub sectors including paddy (16.7 per cent), rubber (32.3 per cent) and minor export crops (15.0 per cent) contracted, largely contributing to the deceleration of the growth in the Agriculture sector. The paddy output declined significantly in both Yala and Maha seasons. Rubber production


declined for the third consecutive year, affected by weakened international demand for natural rubber as well as adverse weather conditions. However, the contraction in output of several key sub sectors was somewhat offset by the improved performance in the coconut and other food crops sub sectors. The coconut sub sector registered an increase of 7.9 per cent in output in 2014 as against a decline of 16.1 per cent in the previous year. The production of other food crops increased by 7.0 per cent in 2014 compared to the growth of 4.3 per cent in the previous year. The utilisation of paddy lands for the cultivation of other food crops and government policies aimed at protecting local farmers helped increase domestic production. Meanwhile, the tea industry performed well in 2014 backed by increased tea prices although its output declined marginally from the highest ever production levels recorded in 2013.

The government undertook several policy measures during 2014 to promote growth and improve productivity in the Agriculture sector. The subsidy programmes to promote replanting and new planting in the tea and rubber sectors were continued during 2014. In the tea sector, factory modernisation continued and steps were taken to popularise mechanisation for tea plucking with a view to improving productivity and good manufacturing practices. Further, the projects under the Livestock Master Plan initiated by several government institutions continued in 2014. Several measures were also implemented to strengthen the national fishing fleet and the construction and upgrading of fishery harbours and anchorages to facilitate deep sea fishing. Meanwhile, policy measures were proposed in the Interim Budget for 2015 including an increase in the purchasing price of paddy under the guaranteed paddy purchasing scheme and increases in the producer prices of potatoes and tea leaves, fresh milk, as well as rubber to promote domestic agriculture. Also, a 50 per cent waiver of loans and advances

extended to farmers by commercial banks, which stand past due, was proposed in the Interim Budget, subject to a maximum loan amount of Rs. 100,000.

The Industry sector growth, bolstered by manufacturing and construction activity, accelerated to 11.4 per cent, enhancing its share in the national output to 32.3 per cent in 2014. The Manufacturing sub sector, which accounts for 53.4 per cent of the value addition in the Industry sector, grew by 8.0 per cent in 2014. Factory industry, which comprises the largest share of the manufacturing sub sector, grew by 8.5 per cent in 2014 with improved external and domestic demand alongside a conducive domestic macroeconomic environment. Export oriented industries continued to be the primary contributor to the growth in factory industry output. Wearing apparel industry recorded a growth of 13.2 per cent in 2014 benefitting from Sri Lanka’s international reputation as a reliable and high quality manufacturer compared to its regional peers. Despite lower domestic production of natural rubber, the Rubber and plastic products sub sector, which increased by 7.1 per cent, maintained its growth momentum facilitated by an increase in raw rubber imports, which were used as an input for the manufacture of rubber product exports during the year. This growth was further supported by external demand for rubber tyres, tubes and other rubber based products. Meanwhile, a persistently low interest rate environment supported by low inflation stimulated domestic demand and boosted the output of domestic market oriented industries in 2014. Accordingly, the Food, beverages and tobacco sub sector grew by 8.1 per cent during the year. This growth was further supported by the increased performance in the leisure industry. Meanwhile, the Construction sub sector continued to play a vibrant role in propelling the economy forward with a growth of 20.2 per cent in 2014, contributing nearly 24 per cent to the growth in 2014. The growth in the Construction


sub sector was supported by public investments in infrastructure development activities, housing development projects as well as large scale private construction activities. The Mining and quarrying sub sector also benefitted from the expansion in construction activity.

The government continued to extend incentives for the development of the Industry sector by providing fiscal concessions, technical assistance as well as upgrading infrastructure facilities required to promote regional industrialisation. Fiscal concessions were mainly aimed at encouraging local value addition and in inculcating energy at 3.2 per cent and 6.5 per cent, respectively, in 2014. The LFPR declined to 53.3 per cent in 2014 from 53.8 per cent during 2013. The low unemployment rate coupled with decreasing LFPR may be indicative of a labour shortage in the market. In the meantime, labour productivity levels continued to increase, with positive contributions from all three sectors of the economy.

Inflation remained at low single digit levels throughout 2014 reflecting the impact of demand management policies, improved supply conditions, downward revision of administered prices and effectively contained inflation expectations. Headline inflation, as measured by the year-on-year change in the Colombo Consumers’ Price Index (CCPI) (2006/07=100), fell further to 2.1 per cent in December 2014 in comparison to 4.7 per cent in 2013. The year-on-year headline inflation remained at single digit levels for the sixth consecutive year. Meanwhile, the annual average rate of headline inflation decelerated to 3.3 per cent in December 2014 from 6.9 per cent in December 2013. The combined impact of prudent monetary management, moderation in international commodity prices, a relatively stable exchange rate, fiscal policy measures taken to address supply side disturbances and well managed inflation expectations contributed to low levels of inflation experienced throughout the year.

The downward revision to administered prices of electricity, water, LP Gas and fuel in the latter half of the year resulted in headline inflation declining to 1.5 per cent in November, the lowest recorded for 2014. Core inflation remained at low levels throughout the year although it moved up to 3.2 per cent, year-on-year, in December 2014 compared to 2.1 per cent at end 2013

Sri Lanka’s external sector improved its resilience in 2014 with a narrowing of external sector imbalance and a surplus in the overall BOP. The current account deficit narrowed to 2.7 per cent of GDP from 3.8 per cent in the previous year buttressed by higher inflows from remittances and trade in services. The deficit in the trade account, as a percentage of GDP, declined to 11.1 per cent in 2014 from 11.3 per cent in the previous year, although in nominal terms the trade deficit increased with a pickup in imports during the latter part of the year. Meanwhile, inflows to the government, banks and the corporate sector propped the financial account of the BOP helping to record a higher surplus in the BOP and an improvement in gross international reserves of the country, despite some volatility in the government securities and equity markets towards the second half of the year. These developments enabled the rupee to remain relatively stable during the year along with the Central Bank’s initiatives to smoothen short term volatility in the exchange rate. Although the trade deficit declined as a percentage of GDP, a notable increase in the trade deficit in nominal terms was observed in 2014. During the first half of 2014, earnings from exports grew by 17.0 per cent while expenditure on imports declined by 1.2 per cent, resulting in a contraction of the trade deficit by 20.3 per cent over the same period of 2013. However, as imports grew faster and export growth decelerated in the second half of 2014, the overall trade deficit expanded by 8.9 per cent, year-on-year, to a value of US dollars 8,287 million in 2014.


Exports grew at a healthy rate in 2014 supported by improved external demand along with a stable domestic macroeconomic environment. Earnings from exports grew by 7.1 per cent in 2014 compared to the previous year and reached US dollars 11,130 million, reflecting increases in all major categories. The highest contribution to export earnings was from industrial exports, supported by the substantial increase in exports of textiles and garments. Earnings from textiles and garments exports, which accounted for about 44 per cent of total exports, recorded an increase of 9.4 per cent in 2014, reflecting increases in garment exports to both traditional and non-traditional markets. Meanwhile, earnings from agricultural exports registered an increase of 8.2 per cent in value terms due to higher exports of coconut products, tea and certain minor agricultural products. Export earnings from coconut products and tea increased by 74.2 per cent and 5.6 per cent, respectively, mainly due to higher export volumes. However, export earnings from spices, which showed a higher growth of 38.8 per cent during the previous year declined by 25.6 per cent in 2014 mainly due to low harvest of main export crops.

PORT SERVICES

The port sector performance improved mainly reflecting increased commercial operations of the Colombo International Container Terminal (CICT), which is capable of handling mega container vessels. Total container handling in 2014 increased by 14.0 per cent to 4.9 million twenty foot equivalent container units (TEUs) from 4.3 million TEUs in 2013. An increase of 15.5 per cent was recorded in transshipment container handling throughput during 2014. Total cargo handling reached 74 million MT recording a 12.3 per cent growth compared to the growth of 2.0 per cent in the previous year. A large increase of 87.7 per cent was recorded in Break Bulk cargo handling, reflecting the handling of increased imports of fertiliser,

iron/steel and vehicles at both Colombo and Hambantota Ports. Vehicle handling, increased by 206.7 per cent while vehicle transshipments, which is performed only at the Hambantota port, increased by 321.7 per cent during 2014. Container ship arrivals increased by 3.1 per cent while the total number of vessels arriving in Sri Lanka grew by 7.2 per cent in 2014 compared to a negative growth of 3.8 per cent in 2013.

Large scale port expansion projects in Colombo and Hambantota continued. Harbour infrastructure development under the port of Colombo expansion project continued as scheduled. The South Container Terminal (SCT), which has the capacity of handling 2.4 million TEUs per annum was completed in April 2014 and the East Container Terminal (ECT) is expected to open for operations in 2015. The construction of a single berth under the first phase of ECT development plan is expected to address the shortfall in the container handling capacity at the port of Colombo. The Hambantota port is expected to emerge as a service and industrial port, given its strategic location. Towards this end, the fuel tank project, which includes 14 tanks of bunkering fuel, aviation fuel and LPG with a total capacity of 80,000 cubic metres, has been completed and the provision of bunkering facilities has commenced in June 2014. The Hambantota port currently handles only bulk cargo. Under Phase II of the Hambantota port project, four berths are proposed to be built while expanding the harbour basin to a depth of 17 metres with modern equipment and facilities. Meanwhile, as per the provisional financial statements, the Sri Lanka Ports Authority (SLPA) recorded an operating profit of Rs. 8.9 billion in 2014 compared to Rs. 2.4 billion in 2013. The construction work of the Colombo Port City Project (CPCP), designed as a business venture along with luxury apartment complexes and recreational centres by reclaiming 233 hectares of land, commenced in September 2014. The construction work of the project was suspended


by the new government pending a review of environmental impact assessment.

EXPORT PERFORMANCE

Export Performance Improved external demand along with stable domestic macroeconomic environment supported the local industries in achieving enhanced export performance in 2014. Accordingly, earnings from exports increased by 7.1 per cent to a value of US dollars 11,130 million in 2014 compared to US dollars 10,394 million in 2013, with contributions from all major categories of exports. Industrial exports which represent about 75 per cent of total exports contributed largely to export growth in 2014. Earnings from industrial exports increased

by 6.6 per cent, year-on-year, to a value of US dollars 8,262 million in 2014, mainly due to a significant increase in textiles and garments exports, which increased by 9.4 per cent to a value of US dollars 4,930 million. The growth in textiles and garments exports contributed for more than 50 per cent of the total growth in exports. The garments exports to the EU and the USA increased by 10.6 per cent and 8.8 per cent, respectively. Meanwhile, exports to non-traditional markets increased by 10.5 per cent compared to 8.9 per cent increase in 2013. The measures adopted by the authorities and industry participants to penetrate non- traditional markets helped achieve a higher growth of exports to those markets. Export earnings on leather products grew by 80.8 per cent to a value of US dollars 139 million in 2014, mainly due to a higher level of exports of footwear to Western markets. Sri Lankan footwear exporters gained a reputation as suppliers of fashion footwear among reputed international brands. Export earnings on food, beverages and tobacco, and machinery and mechanical appliances also increased substantially in 2014. However, export earnings on petroleum products, which mainly comprise of bunker and aviation fuel declined by 21.0 per cent to a value of US dollars 338 million, amidst intense competition from the major regional players, such as India and Singapore. Further, Sri Lanka is relatively less competitive in the bunker and aviation fuel industry, as the unit cost increases due to heavy reliance on imported fuel from regional markets and also due to limited storage capacity. Exports of diamonds also declined by 32.8 per cent due to non-operation of a major industry player, while gem and jewellery exports sustained its growth momentum during the year.

Agricultural exports which contribute for around a quarter of total exports improved further during the year. Earnings from agricultural exports increased by 8.2 per cent to a value of US dollars


2,794 million in 2014 led by exports of coconut products, tea and certain minor agricultural products. Exports of coconut products increased by 74.2 per cent to US dollars 356 million in 2014, mainly due to enhanced performance of kernel product exports, such as desiccated coconut and coconut oil, supported by the favourable weather conditions prevailed in the previous year. Export earnings from tea, which account for about 15 per cent of total exports, grew by 5.6 per cent in 2014 compared to 9.2 per cent growth recorded in 2013. The slower growth of tea exports reflects decelerated demand from the main export destinations such as Russia and the Middle East which account for about 59 per cent of total tea exports. These countries experienced large revenue shortfalls, as oil prices declined, while Russia experienced large depreciation in the Ruble amidst economic sanctions due to geopolitical issues. However, as Sri Lanka supplied high quality orthodox tea which attracts higher demand in the international markets, the export price of Sri Lankan tea averaged at US dollars 4.97 per kg, recording an increase of 3.1 per cent from the previous year and above the average international tea price of US dollars 2.72 per kg in 2014. Minor agricultural exports increased by 63.1 per cent to a value of US dollars 165 million, as exports of arecanuts and fruits increased registering substantial growth of 300.5 per cent and 51.7 per cent, respectively. Sea food and vegetables, categorised under agricultural exports also performed well during the year. However, the export of spices which showed remarkable performance during the previous year slowed in 2014. Earnings on exports of spices declined by 25.6 per cent to a value of US dollars 265 million in 2014 compared to an increase of 38.8 per cent in 2013. This was mainly due to the lower harvest of main export crops i.e. cinnamon, pepper, cloves, mace and nutmeg in 2014 compared to the bumper harvest recorded in 2013. Further, export earnings on rubber also declined by 36.5 per cent to US dollars 45 million, reflecting a

decline in both price and the quantity. Rubber prices in the international market declined throughout the last four years due to higher global supply and reduced demand for natural rubber from major rubber consuming economies such as China and India. Mineral exports including earths and stones, ores, slag and ash, and precious metals increased by 15.3 per cent to US dollars 59 million in 2014.

Sri Lanka’s exports sector faced many challenges in the domestic and external front. Restriction on sea food exports to the EU with effect from mid-January 2015, which is the main sea food market accounting for about 40 per cent of total sea food exports, posed a great challenge to sea food exporters. However, with the corrective actions being taken by the government, the problem is expected to be solved during the year. In the meantime, if the Russian ruble continues to depreciate further in 2015, it will have negative impact on Sri Lanka’s tea exports since Russia is the main single buyer of Sri Lankan tea while demand for tea in the Middle East market could also decrease due to the continued decline in the oil income of these economies. Further, it is expected to regain the GSP+ facility, which provides concessional access to the EU market, especially for textiles and garment products. However, in addition to these concessional market access opportunities, more concentration on moving up in the value chain ladder, backward integration, productivity enhancement and technological innovation are essential to counter the intense competition. Further, concentration of export products is a main concern as two thirds of Sri Lanka’s export earnings depend on a few products such as textiles and garments, tea and rubber products even though product differentiation within those categories have improved significantly in the recent past.

IMPORT PERFORMANCE

Expenditure on imports increased moderately


in 2014 compared to the contraction in both 2012 and 2013. The increase of import growth was higher in the second half of 2014, which was mainly attributed to higher imports of motor vehicles for personal use due to tariff reduction and larger depreciation of the Japanese yen. Accordingly, expenditure on imports in 2014 increased by 7.9 per cent to a value of US dollars 19,417 million compared to the value of US dollars 18,003 million of imports recorded in 2013. Meanwhile, expenditure on non-fuel imports in 2014 increased by 8.2 per cent to a value of US dollars 14,819 million. During 2014, the relative share of consumer goods in total imports increased following a similar trend observed in 2013 while the share of investment goods decreased. The increase in import share of consumer durables reflects the improvement in the life standards of people with higher income levels. However, decline in the share of investment goods is an alarming factor as it may decelerate future growth prospects.

The major contribution to the increase in import expenditure occurred from intermediate goods mainly due to higher importation of petroleum products and textiles and textile articles. Expenditure on imports of intermediate goods, which account for about 60 per cent of total imports, amounted to a value of US dollars 11,398 million in 2014, reflecting a 8.0 per cent increase over 2013. Despite the significant decline in fuel prices in the international market during the latter part of the year, higher import volumes mainly due to increased thermal power generation resulted in the increase in expenditure on imports of fuel by 6.7 per cent in 2014 over the previous year to a value of US dollars 4,597 million. The average import price of crude oil imported by Ceylon Petroleum Corporation declined to US dollars 104.53 per barrel in 2014 from US dollars 109.84 per barrel in 2013. However, the import price of crude oil during the latter part of the year was far below the average price level for the year. Meanwhile,

the expenditure on imports of textiles and textile articles, such as fabric, yarn and fiber increased by 13.8 per cent to US dollars 2,328 million in 2014 in line with the increase in textiles and garments exports during the year. Import expenditure on paper and paper boards, plastic and articles thereof, wheat and maize, chemical products and fertiliser also increased during 2014. Meanwhile, imports of diamonds, precious stones and metals used as inputs for the jewellery industry declined by 63.7 per cent in 2014 following the decline of 17.8 per cent in 2013, mainly due to the non-operation of a main diamond and jewellery exporting firm in Sri Lanka. Further, an increase in gold sales by the banks to domestic industries reduced the demand for gold imports. Import expenditure on cement clinkers also declined by 6.3 per cent in 2014, reflecting lower demand for cement, particularly, in the fourth quarter of 2014 due to unfavorable weather conditions for construction activities.

Expenditure on imports of food and nonfood consumer goods increased largely on account of higher volumes imported in 2014. Overall expenditure on imports of consumer goods increased by 21.1 per cent, year-on-year, to a value of US dollars 3,853 million accounting for around 20 per cent of total imports. Import expenditure on food and beverages increased by 19.4 per cent to US dollars 1,634 million, while non-food consumer goods increased by 22.3 per cent to US dollars 2,219 million. Higher importation of motor vehicles for personal use mainly contributed for the increase in non-food consumer goods imports. Expenditure on motor vehicles for personal use such as motor cars and motor cycles increased by 54.0 per cent in 2014 mainly due to the reduction in import duties on motor vehicles and substantial depreciation of the Japanese yen. Import expenditure on clothing and accessories and telecommunication devices such as mobile phones also increased. The increase in expenditure on food imports


was mainly due to a noteworthy increase in rice imports to 600,000 metric tons in 2014 (US dollars 282 million) compared to 23,000 metric tons in 2013 (US dollars 18 million) as the domestic rice production was affected by adverse weather conditions in 2014. Further, the reduction in import tariff applicable to rice imports in view of protecting local consumers from high domestic rice prices also contributed to the increase in rice imports.

Expenditure on milk powder imports increased due to higher import prices, while imports of masoor dhal and edible nuts increased due to reduction in import duties and higher demand for imported food items in the backdrop of lower domestic production. However, expenditure on importation of sugar and confectionery products, oil and fats and sea food products declined during the period under review. Expenditure on imports of investment goods declined marginally in 2014 largely due to lower imports of machinery and equipment, and building material. Accordingly, the expenditure on investment goods imports declined by 2.4 per cent to a value of US dollars 4,152 million in 2014. Import expenditure on machinery and equipment which comprises engineering equipment, electronic equipment, telecommunication devices, office machinery, machinery for the textile industry and machinery and equipment parts, declined by 4.1 per cent to US dollars 2,131 million in 2014. Meanwhile, expenditure on imports of building material which comprises cement, iron and steel and mineral products declined by 3.6 per cent to a value of US dollars 1,309 million, reflecting the impact of adverse weather conditions on the construction sector. However, import expenditure on transport equipment increased by 5.9 per cent to a value of US dollars 707 million mainly due to higher imports of buses and auto trishaws.

TRADE BALANCE

The trade deficit which contracted during the first half of 2014 was reversed in the second half, resulting in a, year-on-year, expansion in the trade deficit. During the first half of 2014, earnings from exports grew by 17.0 per cent while expenditure on imports declined by 1.2 per cent, resulting in a contraction of the trade deficit by 20.3 per cent over the same period in 2013. However, as imports grew faster and export growth decelerated in the second half of 2014, overall trade deficit expanded by 8.9 per cent, year-on-year, to a value of US dollars 8,287 million in 2014 following the declines recorded in two consecutive years.

However, as a percentage of GDP, the trade


deficit declined to 11.1 per cent in 2014 from 11.3 per cent in 2013. The favorable developments observed in the trade balance during 2012 and 2013 were largely supported by the prudent policy measures taken by the Central Bank and the government in early 2012. However, with the trend in declining global commodity prices, both oil and non-oil, and the recovery of many advanced and emerging market economies, albeit at a lower phase than initially expected, necessitate appropriate policy measures in the near term to address adverse implications on the external sector.

TERMS OF TRADE

The increase in export prices and reduction in import prices resulted in a significant improvement in the terms of trade in 2014. The export price index increased by 2.7 per cent, year-on-year, to 105.5 index points, while the import price index declined by 1.5 per cent to 108.1 index points. Accordingly, the terms of trade improved by 4.3 per cent to 97.6 index points in 2014 from 93.6 index points in 2013.

The export price index increased reflecting relatively higher prices in both agricultural and industrial exports in 2014. In the agricultural exports category, the average export price index of coconut products increased by 15.0 per cent mainly due to higher export prices received for kernel products in the international market. Although the average export price index of tea increased during the first half of 2014, it declined during the second half, mainly due to lower demand from Russia and the Middle East, the major tea export destinations of Sri Lanka. However, the export price index for tea for the year 2014 increased marginally by 1.9 per cent, year-on-year, despite the decline in tea prices in the Kolkata and Mombasa auctions for other originated teas. Export price index for minor agricultural products also increased reflecting favourable prices of products such as fruits, nuts and essential oils. However, export price

index for rubber declined by 10.5 per cent in 2014, reflecting global market conditions. The industrial export price index increased by 3.0 per cent in 2014, mainly due to a 3.3 per cent increase in prices of textiles and garments and a 9.7 per cent increase in leather, travel goods and footwear. Improvements in the quality standards of final products in the garment industry with the adoption of modern technology and innovation provided access to high end markets for Sri Lankan products, resulting in an increase in the unit price of textiles and garments. Meanwhile, export price indices for petroleum products, base metals and articles, and transport equipment declined in 2014.

The average import price of intermediate and investment goods in 2014 remained lower compared to the previous year, while prices of consumer goods increased marginally. The import price index pertaining to the intermediate goods fell by 2.4 per cent, mainly due to the decline in fuel prices. Although the import price index of fuel increased during the first half of 2014, it continued to decline during the second half of the year amidst lower demand due to weak global economic activity and ample supply especially from non OPEC countries. These developments led to a decline in import price index of fuel by 6.3 per cent in 2014. Import price index of fertiliser, which declined by 10.3 per cent, year-on-year, also contributed significantly for the overall decline in import prices. Meanwhile, average import prices of wheat and maize, diamond, precious stones and metals, and rubber and articles thereof also declined significantly. The import price index of investment goods declined by 2.7 per cent in 2014, reflecting a price decline in all sub categories. In line with the decline in prices of raw material and base metal in the international market, the import price index of building material declined by 3.0 per cent. Further, the significant depreciation of Japanese yen against US dollar contributed for the decline in the price


index of transport equipment. Import prices of food and non-food category increased by 0.1 per cent and 1.0 per cent respectively, leading to an increase in the consumer goods price index by 0.7 per cent. Import price index for dairy products increased substantially in 2014 despite the slight reduction of prices in the international market. However, import prices of sugar and confectionery declined due to higher supplies in major sugar producing countries. Meanwhile, import prices of clothing and accessories, medical and pharmaceuticals, and vehicles for personal use, which are categorised under non-food consumer goods also increased.

DIRECTION OF TRADE

India remained Sri Lanka’s major trading partner in 2014 followed by China and the USA. Industrialised countries specially the USA and the UK remained the largest export destinations, while Asia particularly India and China remained the major import origins. The value of trade between Sri Lanka and India amounted to over US dollars 4.6 billion in 2014, which was about 15 per cent of Sri Lanka’s total external trade for the year, while the trade between Sri Lanka and China was about 12 per cent of total trade of Sri Lanka.

The USA continued to be the single largest buyer of Sri Lanka’s exports for a long period

since 1979. The share of Sri Lanka’s total exports to the USA increased to 24.5 per cent in 2014 from 24.0 per cent recorded in 2013, registering a 9.5 per cent growth in export earnings over the previous year. Exports of garments and rubber products respectively accounted for 72.9 per cent and 10.4 per cent of total exports to USA. The UK, the second largest export destination, recorded a share of 10.0 per cent of total exports in 2014. Garments and rubber products respectively accounted for 80.9 per cent and 3.6 per cent of total exports to UK. Out of Sri Lanka’s total garment exports of US dollars 4,682 million, exports to USA and UK accounted for 42.5 per cent and 19.3 per cent, respectively. India, the third largest buyer of Sri Lanka’s exports recorded a share of 5.6 per cent followed by Italy and Germany.

The major exports to India were minor agricultural products, spices, transport equipment, machinery and mechanical appliances, and petroleum products. Exports to Italy increased by 20.3 per cent in 2014, representing 5.5 per cent of total exports mainly due to the increase in garment exports. Exports to Germany, which represent 4.5 per cent of total exports increased by 6.3 per cent in 2014. Russia and Turkey which accounted for 14.0 per cent and 12.8 per cent of total tea exports, respectively, continued to be the major buyers for Sri Lankan tea in 2014. However, tea exports to Russia declined by 5.0 per cent, year-on-year, as a result of the unfavourable economic conditions, such as the larger depreciation of Russian currency and sharp decline in petroleum prices towards the latter part of the year. Meanwhile, tea exports to Turkey increased by 48.1 per cent during 2014.

Concentration of export markets is a main concern as it can lead to instability in export earnings. Sri Lanka largely depends on a few markets namely, the EU and USA which account for around two thirds of total exports. Further, around 66 percent of the Sri Lanka’s tea export


to the Middle East and Commonwealth of Independent States (CIS) countries, which are highly dependent on oil exports. In order to mitigate this risk, a public and private sector combined multi-faceted approach is essential to diversify the markets. Moreover, exporters should utilise existing trade facilities and trade agreements to enhance market access.

India continued to be the single largest source of imports, followed by China and the UAE. During 2014, imports from India increased to US dollars 4,023 million registering 26.9 per cent growth. This accounted for 20.7 per cent of Sri Lanka’s total imports, with petroleum products, fabric and vehicles being the main imports. China, the second largest import origin of Sri Lanka accounted for 18.0 per cent of total imports, in

2014, increasing by 18.3 per cent, year-on-year, to US dollars 3,494 million. The main imports from China were fabrics, petroleum products, engineering equipment and, iron and steel. The UAE was the third largest import origin, surpassing Singapore by recording a 55.8 per cent growth. Petroleum products accounted for 87.1 per cent of total imports from the UAE. Singapore and Japan were the fourth and fifth largest import sourcing countries, accounting for 6.5 per cent and 4.8 per cent of total imports, respectively. However, imports from Singapore declined by 25.1 per cent in 2014 due to lower imports of petroleum products in the backdrop of a 71.7 per cent increase in petroleum imports from the UAE. Major imports from Singapore and Japan comprised petroleum products and motor cars, respectively.

(Source: Central Bank of Sri Lanka Annual Report 2014)

ANNUAL REPORT & ACCOUNTS 2014/2015

FINANCE STATEMENTS

FOR THE YEAR ENDED

31 MARCH 2015