The Next Chapter for Sri Lanka’s Maritime Industry

Speakers:

• Dhananath Fernando — Advocata Institute (host)
• Rohan Masakorala — CEO, Shippers’ Academy Colombo; Secretary General, Free Port Association

This episode of the Advocata podcast examines the state and future of Sri Lanka’s maritime and logistics sector, featuring returning guest Rohan Masakorala, a long-time industry expert with experience across the Joint Apparel Association, the Rubber Manufacturers Association, and shipping policy circles.

Masakorala opens with a blunt assessment: Sri Lanka remains fixated on a narrow slice of the maritime business — transshipment — while the country’s political and bureaucratic leadership continues operating on what he calls “a dead man’s vision” dating back to the 1979 Ports Authority Act that first established Colombo as South Asia’s transshipment hub. He argues transshipment is high-volume but low-revenue, and vulnerable to rapid loss to competitors, a dynamic he says is already playing out. Given global trade is projected to grow from roughly $115 trillion to $180 trillion, with much of that growth concentrated in Asia, he insists Sri Lanka has genuine opportunity — but only if policy, infrastructure, and timing align, which he says they consistently have not over the past decade, at real financial cost.

A significant portion of the discussion covers the “free port” concept, which Masakorala has championed for years and credits himself with successfully pitching to the Export Development Board (EDB) chairman, who is under pressure to hit a $36 billion export target. He explains free ports as duty-free logistics zones where goods move freely in and out for consolidation, minor assembly, or storage, without falling under customs, Inland Revenue, or Central Bank oversight in the way regular trade does — comparing the model to established hubs like Dubai’s Jebel Ali Free Zone ($118 billion annual turnover, 11,000 companies, 300,000 jobs) and similar operations in Singapore and Malaysia. He stresses this doesn’t mean goods entering Sri Lanka proper avoid duties — Sri Lanka itself is treated as just another destination from the free zone’s perspective. He traces the concept’s origins to his time at the Joint Apparel Association, where it was originally conceived narrowly as an “apparel hub” before being broadened. Sri Lanka passed enabling legislation around 2014, but Masakorala says successive governments failed to support it meaningfully until now, with the current EDB leadership and reported presidential interest offering the first real momentum in a decade. He notes India is pursuing similar free-zone development aggressively, adding competitive pressure, though he believes Sri Lanka retains geographic advantages connecting India’s east and west coasts, along with a cost advantage over increasingly expensive hubs like Dubai and Singapore.

On implementation barriers, Masakorala points to unresolved conflicts — such as customs still operating inside the officially “free” Port of Colombo — outdated licensing regimes, and a lack of institutional clarity, noting that logistics policy in India and China falls under Ministry of Communications rather than shipping ministries, a structural distinction Sri Lanka lacks entirely. He argues few domestic parties would actually lose from the reform, since it primarily displaces inefficient middlemen and inflated import costs rather than threatening local industry, making resistance largely bureaucratic rather than political.

The conversation then shifts to Sri Lanka’s transshipment performance specifically, where Masakorala presents a sobering picture. He estimates the country is roughly 10 million containers “behind” cumulative capacity it should have handled, given global demand. Colombo hit 7 million TEUs in 2018 but has grown to only 7.78 million by last year — roughly 1.5% annual growth — compared to 8-15% growth among regional competitors. Over the same period, Singapore grew from 37 to 42.2 million TEUs, and India from 19 to 24 million, while India’s specific share of Colombo’s throughput dropped from around 30% historically to roughly 10% today, as India develops its own deep-water ports (Vizhinjam, Mundra, and others) with major shipping-line partnerships, including a reported $1 billion Maersk investment. He notes Sri Lanka helped competitors like Oman’s Port of Salalah and Malaysia’s Westport get established by declining earlier investment opportunities that those countries then capitalized on. He also flags a concerning recent development: Maersk’s Himalayan Express service, a major transshipment route through Colombo, was withdrawn roughly three months prior in favor of Vizhinjam, threatening related feeder traffic. He cites an anticipated 50-position drop in the World Bank’s Container Port Performance Index as further evidence of declining competitiveness, attributing recent superficial growth to temporary geopolitical disruptions (the Red Sea crisis and India-Pakistan tensions) rather than genuine strategic gains.

On the long-delayed East Container Terminal (ECT) and the newly operational West Container Terminal (WCT, developed by Adani in partnership with John Keells and SLPA, with a reported global relationship to MSC), Masakorala expresses skepticism that WCT’s initial 250,000-container throughput represents genuine growth rather than business shifted from other Colombo terminals, including the Chinese-run CICT. He criticizes the decade-plus delay of ECT — originally planned for 2016-17 — as driven by union interference and shifting government positions, including the SLPA’s controversial decision to take 100% ownership of ECT after previously accepting 51% with Japanese and Indian partners, contrasted with accepting only 15% ownership in the newer WCT deal. He warns that once both terminals are eventually operational, Colombo’s capacity could nearly double from roughly 8 to 15 million containers without corresponding demand growth, risking internal price competition among terminal operators rather than genuine market expansion.

A recurring theme is Masakorala’s argument that global shipping lines and terminal operators — Maersk, MSC, CMA CGM — need direct equity partnership and ownership stakes in Sri Lankan port infrastructure to guarantee sustained vessel calls, similar to the successful South Asia Gateway Terminal (SAGT) model from 1999. He argues that without such partnership, these operators have no long-term financial incentive to keep routing ships through Colombo, and describes recent conversations where CMA CGM’s North America team reportedly told him Sri Lanka’s government isn’t providing clear investment direction, despite having ample capital ($150 billion in some years’ profits) available. He contrasts this with Singapore’s landlord-port model, where the government retains control while inviting global shipping lines in as minority partners, and Dubai’s proactive, government-led investor recruitment culture — arguing Sri Lanka instead forces investors to navigate an outdated licensing regime, discouraging the kind of visible multinational presence (branded billboards, dedicated offices) that signals credibility to broader investors.

The conversation closes with a discussion of geopolitical trade tensions, particularly the evolving U.S. tariff situation. Masakorala notes that despite headlines suggesting settlement, Sri Lanka has no signed trade agreement with the U.S., and effective tariffs on key exports remain high — apparel facing around 52% at U.S. borders when combined with existing Most Favored Nation rates, and rubber products facing similarly serious exposure due to active U.S. lobbying for tariff protection by domestic synthetic rubber manufacturers. He explains that exporters typically cannot pass the full tariff burden to consumers, forcing Sri Lankan manufacturers to absorb a meaningful share themselves, with potential ripple effects across the manufacturing sector. He attributes this year’s apparent export growth to “front-loading” — accelerated shipments to beat tariff deadlines — rather than sustainable demand, noting Bangladesh, Vietnam, and Malaysia saw even larger front-loading surges. He also highlights an emerging shift toward the UK as a re-export hub, enabled by relaxed rules of origin allowing broader regional material sourcing, potentially benefiting Sri Lankan exporters able to source cheaper inputs from China.

On India’s steep reported 50% tariff exposure and the complicated U.S.-India-China geopolitical dynamic, Masakorala is cautious about assuming clear benefit for Sri Lanka, suggesting some order diversion is plausible but likely to be contested by Vietnam, Indonesia, Malaysia, and Pakistan as well, given Sri Lanka’s relatively higher labor and energy costs. He expresses genuine uncertainty about how U.S. trade policy will evolve, given ongoing legal challenges to the tariffs’ legality and their broader economic strain, while stressing that the underlying threat of losing U.S. market share remains real and unresolved.

Throughout, Masakorala repeatedly frames Sri Lanka’s maritime and logistics sector as an underexploited macroeconomic lever — noting that logistics contributes roughly 20-33% of GDP in hub economies like Dubai, Singapore, and Malaysia, compared to under 2% in Sri Lanka — arguing that meaningful reform could meaningfully improve the country’s broader economic trajectory if pursued with the timing, institutional clarity, and investor partnership models that regional competitors have already adopted.