Through the official tour of Sri Lankan President Maithripala Sirisena to Bangladesh during July 13-15, 2017, the two countries are back on the track to revitalise and strengthen their bilateral relations and begin some specific planning to boost their economic ties.
During the visit, a Memorandum of Understanding was signed between Bangladesh Shipping Corporation
(BSC) and Ceylon Shipping Corporation (CSC).
The agreement is aimed at increasing frequency of feeder services among the seaports of the two countries, keeping the existing and potential maritime traffic in consideration. There would be priority berthing and tariff concession at the Bangladesh's Chittagong and Sri Lanka's Colombo seaports.
The deal on coastal or short sea shipping is poised to save both the transshipment cost and time thereby boosting the competitiveness in the global market and bolstering trade ties between the two countries.
The two sides want to make feeder vessel services operational between seaports of the two countries, like Mongla and Payra in Bangladesh and Trincomalee, Hambantota and Jaffna in Sri Lanka, and even with ports of other countries in the Bay of Bengal region.
The container feeder service would cater to the needs of exporters, importers, and local coastal traders of both countries, as well as neighbours, according to the MoU, which said that crude oil, finished products, fertilizer and coal would be the likely commodities.
The CSC and the BSC will also cooperate in other shipping related areas with a view to benefitting shipping industries of both sides.
The coastal shipping is going to be the direct short distance trade ever made available between the two trade partners.
Currently, there are private sector container feeder vessels from Bangladesh to Sri Lanka.
After the MoU, state-owned container feeder services would commence giving shippers a dependable, competitive and effective container feeder service.
Major exports from Bangladesh are destined to the USA, Canada, Europe, Australia and are currently moved by feeder vessels via transshipment hubs of Singapore, Colombo, Port Kelang and Port of Tanjung Pelapas (PTP) of Malaysia.
Export containers can get lower rates and cut down the time taken to reach ports in the US East Coast, Canada, Europe, the Mediterranean, Gulf and Africa by four days by transshipping containers through Colombo Port thereby reducing the "lead-time".
Bangladesh imports and exports are transported on feeder vessels. Nevertheless, the volume is sufficient to justify shuttle operations between Chittagong and both Singapore/Tanjung Pelapas and Colombo with several calls per week and strong competition.
Transshipment via Colombo offers a competitive advantage for shipments to Europe and US East Coast, but the large buyers of Bangladesh's exports prefer the shipping lines that call at Singapore since Colombo offers less frequent service.
For shipments to East Asia and the Pacific Rim, Bangladesh is at a competitive disadvantage relative to China and other East Asian countries.
In some cases, it may be at a disadvantage for shipments to the US East Coast because of the all water routes.
In 2015-16, about 2.2 million containers were transported through the Chittagong port. During the outgoing fiscal of 2016-17, the figure increased to over 2.4 million containers.
About 1.5 million inbound and outbound containers are handled by the Chittagong port annually. The Mongla port dealt with 42,000 containers in 2014-15.
Till date, more than 50 per cent of the third-country-bound containers from Bangladesh are dealt through the Singapore port and about 15 per cent through the Lankan ports.
In case of Chittagong-Colombo routing, the monthly volume of inbound (import) containers is approximately 10000-11000 TEUs (twenty foot equivalent unit), while outbound (export) volume is 12000-15000TEUs on an average.
Along the Chittagong-Singapore route, volume of inbound cargo is 47000-50000 TEUs per month; while export volume from Bangladesh to Singapore-Port Klang is 26000-30000 TEUs laden. Remaining of the inbound volume is being repositioned
to Singapore and Port Klang as empty
It is estimated that Chittagong to Singapore or PTP and Colombo generally take 4 days but Colombo takes 8 hour less than Singapore.
The strategic position of the port of Colombo along the sea routes of the Indian Ocean has since its inception led to the port serving as a port of call for funneling and other shipping services. The port of Colombo is considered today as a transshipment hub for South Asia.
It is true that the port of Chittagong lacks required infrastructure to support the rising growth in container cargo movement. Owing to natural disasters like cyclones or political disturbances or infrastructure bottlenecks like crisis of gantry cranes or sudden breakdown of handling equipments create congestion at the port.
Vessels left for days at the outer anchorage send bad signs to shippers and vessel operators. They in turn try to make up for their losses by raising the surcharge or service fees.
Such extra freight or other service charge demanded by the feeder or chartered vessel operators puts extra burden on exporters and cuts their profit margin. It reduces their competitiveness and hinders growth of the export despite several incentives and policy support from the Bangladesh government.
It would be the second time that Bangladesh would enter into a coastal shipping agreement. The first one was signed with India in 2015. The treaty came into operation almost a year after its signing following the endorsement of standard operating procedure.
There is no significant cargo movement between sea ports of Bangladesh and India as it is not profitable for the big vessels to operate between these sea ports. Under such circumstances, there was a need for smaller ships to provide direct connectivity between the eastern sea ports of India, Chittagong and other ports in Bangladesh.
This, besides improving the connectivity, would also provide competitive freight rates.
India and Bangladesh share a 4,095-km border, of which 1,116 km is through rivers. Shifting to coastal shipping reduced the shipping time between India and Bangladesh, commercial traffic congestion at 'land ports', also called border stations for import and export.
Moreover, the Protocol on Inland Water Transit and Trade (PIWTT) signed between the two countries in 1972 facilitates passage of goods between two places in one country and to third countries through the other's territory on eight specific routes.
India has already started to use transit facility by sending cargoes through coastal shipping from Kolkata to its seven sister states in the northeast using Bangladesh territory, which helped cut distance and transportation costs drastically.
Regarding the tangible benefits of coastal shipping agreement, two other important and contiguous neighbours of India, namely Bhutan and Nepal, will also start reaping the fruits of connectivity.
Until now, only a negligible volume of Indo-Bangla trade is being done through waterways.
Business circles says poor navigability of the rivers, problems in port handling, and lengthy and complicated customs procedures have kept the potential of using water routes for bilateral trade untapped. They say transportation cost of goods between Bangladesh and India can be cut by $3 per metric ton by shifting the freight from road to waterways.
Bay of Bengal ports collectively face a common problem as they are largely bound to the hub-and-spoke feeder system that significantly raises transport costs.
In addition to that, most of South Asian ports in the Bay of Bengal have low levels of productivity and connectivity. These result from a combination of factors: public sector management, less productive equipment, capacity constraints and depth constraints where bigger vessels are unable to operate and call ports. Most of the ports have available drafts of 11-12 meters and big ships require more than 14.5 meter depth to call ports.
In coastal shipping, the passage of goods in both directions is not equal. This leads to imbalance; the cargo movement pattern is dependent on the production and availability of goods, demand and the distance separating production centers from the points of destination of those goods.
About 30 to 40 per cent of the operational costs of short sea or coastal shipping consist of fuel costs. This implies the sector is vulnerable to variations in the price of fossil fuels.
There is need for incentive package to support growth and development of coastal shipping.
Let's take the example of Mumbai port in India. In order to attract more companies to use coastal shipping, Mumbai Port, along with other major ports across the country, is offering a 40 per cent discount on cargo
Besides, Mumbai Port has kept two dedicated berths for coastal shipping, which ensures timely loading and unloading of cargoes.
The sector is dependent on the economic climate. The decreases in shipping volumes as a result of the 2008 crisis demonstrate this.
The Liner Shipping Connectivity Index (LSCI) captures how well countries are connected to global shipping networks. The position of coastal countries within global container shipping networks is reflected through the LSCI.
It is computed by the United Nations Conference on Trade and Development (UNCTAD) based on five components of the maritime transport sector: number of ships, their container-carrying capacity, maximum vessel size, number of services and number of companies that deploy container ships in a country's ports.
It is observed that the LSCI index has strong correlation with the Logistics Performance Index (LPI) which is 'an interactive benchmarking tool created to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance' (World Bank website).
Hence when interpreting the LSCI, it has to be noted that a country's liner shipping connectivity is closely related to its seaborne trade in manufactured goods.
At the same time, economies of scale and scope are important in shipping, and thus it can be expected that higher trade volumes will also lead to more frequent and less costly shipping services, which in turn will also increase the country's LPI.
According to the UNCTAD data, in 2016, the Sri Lanka bears LSCI index value of 63.21, where Bangladesh has a score of 12.62. This clearly states Sri Lanka is better positioned to reap the benefits of connectivity via maritime route.
In 2014, out of 160 countries, Sri Lanka has LPI standing at 89 whereas Bangladesh at 108. In 2016, Bangladesh stands at 87th with LPI score 2.66; however, for Sri Lanka, data for the year is not available (See Table).
To measure the trend of bilateral connectivity, there is a truly bilateral index of liner shipping connectivity, the Liner Shipping Bilateral Connectivity Index (LSBCI). Their LSBCI is an extension of UNCTAD's country-level Liner Shipping Connectivity Index (LSCI)
Bilateral connectivity index as of 2015 with Sri Lanka (0.320) is higher than India (0.308) and China (.320 ); however, the score lags behind Singapore (0.354) and Malaysia (0.345).
The World Bank's report on the 'Competitiveness of South Asia's Container Ports' released on April 27 this year states Bangladesh can cut shipping costs by up to 9.0 per cent and boost its exports by 7 per cent if its ports become as efficient as Sri Lanka's.
Since, there is provision for third country connectivity, a coastal shipping belt comprising Bangladesh-India-Sri Lanka is a clear possibility. This would also add new dimension to local maritime logistics business.
Both Sri Lankan President Sirisena and Prime Minister Sheikh Hasina described shipping as 'one of the key areas with potential' for mutually beneficial cooperation.
Bangladesh and Sri Lanka are on the road towards signing FTA to boost bilateral trade and want to see their two-way trade volume triple in the next two years exploring new investments and business opportunities.
The total bilateral trade between the two countries has grown more than two fold from US$ 48 million in 2010 to US$ 131 million in 2015.
Sri Lanka's exports to Bangladesh too saw a steady increase in the past five years. In 2013 it recorded the highest increase of 45 per cent (compared to 2012).
The two-way trade volume during 2016-17 hovers around US $142 million and it will have a big boost with signing of the coastal shipping deal.
With SAFTA already in force, the trade statistics are on the upward trend; the post-FTA scenario would require more small container and cargo vessels and this would trigger the growth of small and medium shipbuilding industries across the region.
Shipping cooperation should result in improved connectivity and open up further opportunities for bilateral trade between the two countries and beyond. There should be active involvement from the private sector as well.
The writer is Assistant Commissioner (Customs & VAT).