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ANNUAL REPORT & ACCOUNTS 2005/2006

The Council

Mr. Jayanath Perera
Chairman

Mr. Ananda Wijesuriya
Vice Chairman

Mr. Noel Priyatillake
Immediate Past Chairman

HONARARY MEMBERS
Mr. S.S. Jayawickrama

OBSERVER
The International Chamber of Commerce

SECRETARY GENERAL
Mr. Prema Cooray

SECRETARIAT
The Ceylon Chamber of Commerce
50, Nawam Mawatha
Colombo 02
Telephone: 2422156
Fax: 2449352
Email: [email protected]
web: www.shipperscouncil.lk

MEMBERSHIP

Mr. Jayanath Perera
(Representative)

Mr. Ruwan Senanayake
(Alternate)

Mr. Clement Pereira
(Representative)

Mr. Panduka Jayawardhana (Alternate)

Mr. Gihan Kuruppu
(Representative)

Mr. Nalin Jayasinghe
(Alternate)

Mr. Tissa Ruberu
(Alternate)

Mr. Devaka Attygalle
(Representative)

Mr. Deepal Chandrasekara
(Alternate)

Mr. Rasa Weerasingham
(Representative)

Mr. L.S.G. Tillekeratne
(Alternate)

Mr. Manjula Agalawatte
(Representative)

Mr. Dinesh de Silva
(Alternate)

Mr. Anura Edirisinghe
(Representative)

Mr. M.F. Jiffry
(Alternate)

Mr. I Piyasena
(Representative)

Mr. Randolph Perera
(Alternate)

Mr. Niral Kadawatharatchie
(Representative)

Mr. S. Mohanadas
(Alternate)

Mr. Sudantha Amaratunga
(Representative)

Mr. Ajith Jayasekara
(Alternate)

Mr. Shantha Wijesinghe
(Representative)

Mr. Z. Alif
(Alternate)

Mr. Ismath Rahman
(Representative)

Mr. Anil Panagoda
(Representative)

Mr. Andre Fernando
(Alternate)

Mr. Harith Jayasuriya
(Alternate)

Mr. Sarath Wickramaratne
(Representative)

Mr. Shalinda Perera
(Alternate)

Mr. Ananda Wijesuriya
(Representative)

INDIVIDUAL MEMBERS

Canro Exporters (Pvt) Ltd
City Cycle Stores
Coco Lanka Ltd
Cross Ocean Logistics (Pvt) Ltd
Excel Global Holdings (Pvt) Ltd
Fascination (Pvt) Ltd
Freight Links International (Pte) Ltd
Geologistics (Pvt) Ltd
Hayleys Ltd
Hela Clothing (Pvt) Ltd
Imperial Teas (Pvt) Ltd
James Finaly & Co. (Colombo) Ltd
MAC Holdings (Pvt) Ltd
MASS Logistics & Shipping (Pvt) Ltd
Mabroc Teas (Pvt) Ltd
Neil Fernando & Co. (Pvt) Ltd
Orient Garments Ltd
Oxley Threads Lanka (Pvt) Ltd
Qualitea Ceylon (Pvt) Ltd
Readywear Industries Ltd
Standard Trading Co. (Pvt) Ltd
Tea Palace (Pvt) Ltd
Tea Tang Ltd

OUR VISION

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

OUR MISSION

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

• Being the APEX Body, protect the interest of our customers and being a strong Advocate to the Government.
• Ensuring cost effective strategies are developed and implemented in the logistics and value chain to make our members more competitive.
• Facilitating greater efficiencies in logistics by reducing logistics barriers and simplifying trade.
• Acting as the mediator in resolving conflicts amongst our customers (members).
• Facilitating a level playing field by developing and promoting a code of conduct / ethics for our customers (members).
• Establishing a centre for excellence for information sharing and to upgrade competencies of members to compete globally.
• Leveraging regional and global partnerships and facilitating global best practices in logistics in Sri Lanka.

OUR DEFINITION OF LOGISTICS

Activities in the supply chain in the movement of goods from sourcing to delivery (desk to desk, door to door), which involves;

• All types of freight
• Border controls and regulatory authorities (customs, quarantine, chambers, ministries, embassies, etc.)

THE SRI LANKA SHIPPERS' COUNCIL

The Sri Lanka Shippers' Council 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 Sri Lanka Shippers' Council is the apex body that represents the interest of shippers.

Membership of the Council consists of Chambers of Commerce and Trade Associations, and fifteen such organisations are currently members of the Council and the Council represents more than 95% of the import/export trade. The Council derives its broad based representation and membership from these trade Associations. 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 a Vice-Chairman who is 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 promotes the Sri Lankan Government's vision of making the Colombo Port a competitive Maritime & 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.

The Sri Lanka Shippers' Council is 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.

OFFICE BEARERS

At the Thirty Fifth Annual General Meeting held on 22nd July 2005, Mr. Jayanath Perera was elected Chairman of the Council and Mr. Ananda Wijesuriya was elected Vice-Chairman.

ACTIVITIES OF THE COUNCIL

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

There are four (4) Action Committees appointed to function as follows: The Issues Sub Committee, Membership Sub Committee, Trade Complaints Sub Committee and the Finance Sub Committee.

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.

• Terminal Handling Charge
• Lobbying for reduction of Port Charges, which are considered high in the region.
• Freight Rates & Surcharges
• War Risk Surcharge
• Maritime Security
• Trade Complaints
• Performance of the Port of Colombo
• Electronic Data Interchange (EDI)
• Need for a National Carrier
• Need for a Regulator to look after the interest of all stakeholders
• Pushing for South Harbour Development Project
• Federation of ASEAN Shippers' Councils (FASC)
• Asian Shippers' Council (ASC)
• Association of Shippers' Councils of Bangladesh, India, Pakistan & Sri Lanka (ASCOBIPS)
• SLSC Website

TERMINAL HANDLING CHARGE (THC)

THC was introduced in Sri Lanka in 1997 and since then the Council identified THC as an anti-competitive practice, which needed to be resolved. The Council has taken up the position that this issue can only be resolved if both parties to the dispute (Shipping Lines/Shipping Agents and Shippers) have a mutual respect for each other's views. Although the Council has been pursuing this strategy, it is a matter of regret that the Council has not been able to arrive at a consensus yet.

The Council had recommended THC cost components be divided into ship based costs and land based costs. The Council had identified these costs and have proposed that ship based costs be included in the freight rate and the land based costs be paid directly to the port.

Internationally the trend had changed considerably as the Council was informed of the decision of the Chinese Ministry of Communication together with the National Development and Reform Commission and State Administration for Industry and Commerce of China, which revealed that THC should only be paid by the party who pays freight and it should be an integral part of the Ocean Freight.

FREIGHT RATES & SURCHARGES

The policy of the Council is to allow market forces to determine freight rates. Freight rates will vary from Shipping Line to Shipping Line depending on the service patterns, service levels and transit times. The Council would not entertain any general rate increases (GRI) unless the shipping lines adhere to the consultative procedure, which had been established between the Council and the Ceylon Association of Ships' Agents (CASA).

The Council had not seen any drastic upward movement in freight rates during the last year, reportedly due to over supply of the capacity. However, the Shippers' Council believes that shippers should not be complacent as the immersing economies could swell demand.

Most of the attempts made by the shipping lines to bring in additional charges were not successful due to the prevailing economics of the industry. The Shippers' Council is encouraged by the EU repeal of anti-trust immunity for liner conferences. The Council commends the European Commission for taking the decisive leading role in this repeal process.

WAR RISK SURCHARGE

As at present the London based underwriters have shown satisfaction with regard to the security arrangements within the seaport and airport in Colombo. However, since Sri Lanka is under held cover status any slight change in the situation can invoke the underwriters to re-establish the high-risk status in Colombo. A situation as such would be detrimental as it would increase the insurance rates for hull and machinery of the ships and naturally the freight rates will also increase.

MARITIME SECURITY

The Council is pleased to announce that the Colombo Port is now in full compliance with the International Ship & Port Facility Security Code (ISPS).

Under the US Customs Container Security Initiative (CSI), the Colombo Port was selected as one of the Asian Ports to implement the CSI program, which was in place together with the Mega Port initiative. The CSI program in Sri Lanka was one of the first to be implemented in the region.

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.

The annual membership fee for Trade Associations/Chambers is Rs. 5,000/-, while the membership fee for individual companies is Rs. 2,000/-.

During the year under review, the Council approved membership for the following companies as Individual Members:

• Geologistics (Pvt) Ltd
• Niel Fernando & Co. (Pvt) Ltd

FINANCE

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

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.

SRI LANKA CUSTOMS

The Council has maintained a very close working relationship with the Sri Lanka Customs. During the year under review, the Council met with the Director General of Customs on many instances to discuss various trade related issues. Through this dialogue the Council has been successful in promptly resolving many issues on behalf of the trade.

PORT OF COLOMBO

The Council is compelled to reiterate its position that the Port charges in Colombo Port are the highest in the region (except Hong Kong). Our local importers and exporters subsidize the transshipment cargo by paying through these exorbitant charges.

As of recent the Council had come upon newspaper reports regarding severe decreases in productivity in the port container handling operations. At a time when there is much speculation with regard to the new generation mega container ships with capacities of 12,000 to 16,000 TEUs will soon be in operation, any productivity or efficiency drop in the existing terminals would detrimental to the port and shippers.

The Council strongly advocates that in order to retain the Hub Port position for Colombo, the planned South Harbour project should get off to an early start, whilst maintaining the existing facilities at high efficiency levels.

The Council is also of the view that the port should only handle containers within the port premises and all LCL cargo deliveries should be moved to a outside location. This would help the Port to increase productivity and make available valuable space for container movements. Furthermore it will minimize the number of personnel entering the Port and help to strengthen security.

NEED OF A NATIONAL CARRIER

The current security situation prevailing in the country is another reminder of the importance of a national carrier. As an island nation it is of vital importance for the country to maintain a national merchant shipping fleet that would fulfill the defense, trade and strategic needs of our country, instead of depending on foreign lines for such needs.

Thus it is vital to have a strong national carrier to serve the national interests and prevent shippers from being held to ransom by foreign lines. This view has been expressed for a considerable period and even today it goes without saying that the need is even greater to have a strong national carrier. There have been numerous instances in the recent past where exporters and importers have suffered due to the absence of a national carrier. During turbulent times the country looks to its merchant shipping fleet to cater to its strategic needs.

The Sri Lankan economy revolves around its exports and therefore it is the responsibility of the Government to ensure that exporters have access to fair and reasonable shipping services. On the other hand the cost of essential imports has to be kept down and timely deliveries ensured to prevent social unrest. Foreign lines will not consider such facts, as they are totally profit driven.

Therefore the need of the hour is for the Government to officially recognize the importance of an "increased degree of self reliance" in shipping, so that the economy could be amortized to a certain extent of drastic unexpected changes in the international conditions. The Ceylon Shipping Corporation should be transformed into a viable and effective organization capable of competing at the highest level and providing a service, which meets the demands of today's business environment. Accordingly, the Government should take urgent steps to develop the National Merchant Fleet. This should include developing the state owned fleet through public-private joint ventures in which the Government will be the major stakeholder or through a management agreement.

NEED FOR A REGULATOR TO LOOK AFTER THE INTEREST OF ALL STAKEHOLDERS

The Council reiterates that the Central Freight Bureau of Sri Lanka should be modeled in line with the Federal Maritime Council of the US. In this regard a lesson could be learnt from the Government of India, which had administered such an authority to monitor and act as a regulator in shipping matters.

The government should have in place a regulator covering the following activities connected to the maritime and logistics industry.

• Liner shipping
• Freight Forwarders and Consolidators
• NVOCC Operators
• Container depots and freight stations
• Marine surveyors
• Shipping agencies
• Safety of navigation
• Registration of ships
• Training and certification of seafarers

The Bureau should undertake the promotion and fostering of the following areas;

Undertake research activities taking into account maritime-related research conducted by other institutions.

This includes the export and import data, impact of total transportation costs on our exports, volume forecast for national ports etc. The authority to be empowered to collect source documents required to collect statistics.

This implies intervention within a structured framework of conflict resolution process on a agreed procedure with the participation of independent professionals and representatives of the industry

Conflict resolution would include the following steps:

• Consultation
• Conciliation
• Arbitration
• Regulatory measures

The authority should have the right to impose fines and penalties. The necessary changes to the legal system to facilitate arbitration also to be implemented.

Implement measures to foster the development of maritime and Logistics educational facilities by the Private Sector, Professional Institutions and Universities.

Review security measures in the maritime and logistics sector and be responsible maintaining high standards compatible with international requirement.

Enforce marine pollution prevention measures and ensure total preparedness to handle any maritime disaster, which may pollute the Sea and beaches around Sri Lanka.

A website to be established with wide ranging information on maritime logistics and shipping sectors.

Establish a link between existing libraries and create a central database and obtain books, journals and periodicals, which are not available currently covering the maritime and logistics areas.

A single Authority has to be the focal point for all international Conventions, agreements and IMO.

• In order to ensure transparency all Freight Rates and Ancillary charges charged by Service Providers such as Shipping Lines, Shipping Agents, Freight Forwarders, Consolidators and NVOCC operators shall be filed with the Regulatory Authority. Due notice shall be given if there are increases or decreases of such rates. This should be made mandatory.
• There should be a consultative procedure between shippers and the service providers on matters relating to commercial activities relating to shipping.

Sri Lanka Export trade and the shipping industry have experienced maritime fraud in the recent past. The authority has to deal with these cases of maritime fraud and also implement necessary preventive measures.

Some of the above functions are currently being carried out by various organizations, while some functions are not being considered. The Government should create a single maritime and logistics authority to overlook and perform all the above activities. The Government should decide as to whether the existing institutions should continue to work under the umbrella of this authority or be absorbed into the authority. The management of this authority should be a non - political, professional and independent and should be a public, private partnership, preferably include representatives from key organizations shaping the country's ports and shipping as well as the Chambers of Commerce

MINISTRY OF PORT & AVIATION

As in the previous years, the Council maintained an amicable relationship with the Ministry of Port & Aviation during the year under review. On several occasions the Ministry consulted the Council on various matters concerning the shipping industry. The Shippers' Council intends to Further develop and maintain its relationship and dialog with the Ministry and the relevant authorities.

SHIPPING DEVELOPMENT FUND (SDF)

In order to support the activities of the country's maritime development and sea borne trade it is encouraged to develop the country's maritime logistics as there is much need to maintain such a fund. The fund should in addition support the industry activities and facilitate various investments for the development of the industry and to bring it up to a standard of global competitiveness. Investments have to be made in areas such as safety and security and also to establish a Portfolio Fund for financing maritime activities such as fleet development.

Currently the Shipping Development Fund is in operation where 1% of net freight earnings of export cargo are contributed. It is recommended that proper laws be enacted to support the fund. in the absence of such legislation the fund does not operate properly. The Government has commenced the collection of additional funds from all imports for the development of Ports and Airports by way of a port and airport Levy., which is an addition burden on shippers.

The objectives and policies of the fund should be clearly defined. A mechanism and an administrative framework should be in place to ensure policies are implemented and the objectives achieved. The management of the fund should be in the hands of professionals selected from the Government and Privates sectors engaged in Maritime and Shipping activities. It is known that in the past funds lying to the credit of the SDF has been utilized for activities, which were not shipping related. Utilization of funds for such activities, which are not shipping related should be stopped immediately.

MARITIME POLICY OF SRI LANKA

The Council strongly advocates that there should be a "Maritime Policy for Sri Lanka" and urges the relevant authorities to expedite this matter without any further delay.

Over the past few years many committees were appointed to review the policy. The last being in 2005 under the direct guidance of the Secretary of the Ministry of Ports and Shipping. The Council representative was invited to serve in all these committees and the Council submitted its proposal to be included in the Policy. However it is regrettable that the Policy is still limited to a draft.

The recommendations made by the Sri Lanka Shippers' Council are as follows:

• The Sri Lanka Shippers Council while encouraging and inviting private sector participation in business activities within the port is of the view that modalities governing same should be laid down. A Cost plus approach should be laid down for tariff and should be studied and improved upon to adopt reasonable methods of earning profits by the private sector.
• The port should reorganize its primary objective to service the local sea borne trade and highlight that local shippers were a key component of the ports customers.
• Monopolies of any sort should be prevented and competition amongst service providers should be encouraged. The policy should be to bring in additional investors and competition as may be warranted.
• Through the appointment of a Port Regulator (Independent to SLPA) the Government should ensure that private sector operators provide a fair services for the charges levied while ensuring the benefits of competition are available to all port users. Measures to safeguard facilities should be provided in order to ensure that these facilities utilized by the private sector do not become captive facilities but continue as public utility.
• The SLPA should remain the landlord and a proper leasing policy should be adopted.
• The existing organization structure of the SLPA should be improved so that a proper management structure is in place to be competitive in the existing competitive environment, which has and is developing within Asia. Very good examples of which are available from around the region.
• The port must make serious note of the developments taking place especially in India and China. The proposed Colombo South Port Project should be fast tracked and until such time urgent steps should be taken to ensure that Colombo remain a key port in the East-West sea route.

ELECTRONIC DATA INTERCHANGE (EDI)

Global business processes are rapidly changing with new features like Just In Time, Zero Inventories, Locate to Order and Built to Order. Most of these processes use internet related technologies that have opened new forms of communication, reduced the cost of various market interactions and brought manufacturers and consumers around the globe closer.

In order to be competitive, Sri Lanka need to be enabled to meet these challenges as, in an increasingly global market buyers could choose suppliers from those regions and countries that specializes and have all the required facilities where the factor costs are the lowest.

Sri Lanka's vision should be a digital transportation and trade network system among logistics players in the supply chain, which is on an open and neutral E-platform.

The Council continue to express its disappointment and note that the present service provider had failed to provide the full service to the trade as specified by the EDI advisory committee, and as a whole perceives that Sri Lanka would be at a disadvantage if these technology advancements were not implemented soon.

It is also regrettable that the Service Provider is marketing this service without providing all the services to the shippers as specified in the brief prepared by the EDI Advisory Council. The Council wish to request the authorities to immediately cease such activity, as it does not serve the original objective.

FEDERATION OF ASEAN SHIPPERS' COUNCILS (FASC)

The 28th Annual General Meeting of the Federation of ASEAN Shippers' Councils (FASC) was held in September 2005 in Indonesia, hosted by the Indonesian National Shippers' Council. The meeting was attended by 49 delegates of 12 shippers' councils from Asia and South Africa.

The Honourable Hatta Rajasa, Minister of Transportation of the Government of Indonesia was the Guest of Honour and keynote speaker aptly expounding on the theme of the FASC AGM, which was "Maritime Services for our Common Interest."

Present were members from the Indonesian National Shippers' Council, Malaysian National Shippers' Council, Philippines Shippers' Bureau, Singapore National Shippers' Council, Thai National Shippers' Council, Hong Kong Shippers' Council, Korean Shippers' Council, Macau Shippers' Association, Shippers' Council of Bangladesh and the Sri Lanka Shippers' Council. A six member delegation from the Sri Lanka Shippers' Council attended this meeting

Observers in attendance were Japan Shippers' Council and South African Shippers' Council.

The meetings covered a broad range of subjects including the regional and country reports highlighting the member country accomplishments and activities, issues of common concerns including Terminal Handling Charge and other surcharge problems, the dialogue with carriers, maritime regulatory system and freight transportation security.

It is with much regret that the Sri Lanka Shippers' Council report the loss of opportunity to host the 28th FASC AGM in Colombo due to circumstances completely beyond the Council's control. Therefore, the 28th Annual General Meeting of the FASC has now been scheduled to be held in Indonesia in November 2006.

ASSOCIATION OF SHIPPERS' COUNCILS OF BANGLADESH, INDIA, PAKISTAN & SRI LANKA (ASCOBIPS)

The 17th Annual General Meeting and the Silver Jubilee Celebrations of the Association of Shippers' Councils of Bangladesh, India, Pakistan, and Sri Lanka was held from 28th to 29th July 2005, in Karachi, Pakistan. The Pakistan Shippers' Council in collaboration with the Federation of Pakistan Chamber of Commerce and Industry hosted the Silver Jubilee Celebrations.

The Chief Guest for the occasion was Captain Anwar Shah, Director General and Ex-Officio Additional Secretary, Ministry of Shipping of the Government of Pakistan. Mr. John Lu, Chairman, Asian Shippers' Council attended the Inaugural Session as a Special Guest and held an exclusive meeting with the Chairman of the four member Councils. At this meeting, Mr. Lu had expressed the importance of shipping activities to gradually cover the shippers of the world.

The Chairmanship of ASCOBIPS was retained by Bangladesh for the ensuing year.

TRIPARTITE SHIPPERS' MEETING (TSM)

The Tripartite Shippers' Meeting (TSM), which brings together shippers from USA, Canada, Europe and Asia was held in San Francisco, USA from 15th to 17th September 2006. Past Chairman Sri Lanka Shippers' Council and ASCOBIPS Convenor for the Asian Shippers' Council, Mr. Ravindra Ratnapala and Immediate Past Chairman, Sri Lanka Shippers' Council, Mr. Noel Priyatillake attended the meeting as members of the Asian Shippers' Council delegation representing ASCOBIPS.

The meeting discussed numerous subjects which are vital in today's maritime transportation industry. 13 shippers' councils from around the world participated at the meeting. This was the first time that ASCOBIPS attended the meeting which was an excellent opportunity to bring to the notice of shippers' worldwide, especially the US, Canada and Europe, of the developments taking place in the Indian Sub Continent.

The next session of the Tripartite Shippers' Meeting is expected to be held in Europe in September 2006.

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 improve the service level of these organizations.

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 165 years. The Council members have had several meetings with the Chamber officials on policy matters relating to port and shipping.

During the year under review, the Shippers Council continued with the submissions of the following issues to the Ceylon Chamber of Commerce at the monthly Chamber Committee meetings:

• Terminal Handling Charge (THC)
• Port Charges and Appointment of a Regulator
• Sri Lanka Automated Cargo Clearance System (SLACCS)

WEB SITE

The website is regularly updated with trade related information and hosts value added services. The website address of the Council is 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.

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