24 May 2023

Freight Talk - Effect of Sri Lanka's Economic Crisis On The Freight Forwarding Sector

A lack of necessities, skyrocketing inflation, mountains of foreign debt, and a depreciated currency are just a few of Sri Lanka’s economic woes. With every choice available, the Sri Lankan administration is attempting to turn things around. Although the IMF bailout money starts to flow in the upcoming weeks or months, it is unlikely that it would signal an immediate end to Sri Lanka’s economic woes.

Sri Lanka is heavily dependent on imported products, such as machinery, fabrics, plastics, pharmaceuticals, rubber and rubber articles, iron and steel, paper and paper board, fiber, and food items. However, the country faces limitations in importing adequate commodities due to a lack of foreign currency. The government’s decision to limit the use of chemical fertilizer in agriculture also had a detrimental effect on the nation’s agro economy. According to “Economist” publications, Sri Lankan imports decreased by 20.3% YOY to USD 1,450 Mn on March 23.

Similarly the exports sector had a negative growth falling by 2% to USD 1037 MN due to lower shipments of industrial products. Tea accounts for 17% of all exports, along with spices, gem & jewelry, coconuts, rubber, and fish. Textiles and apparel account for 52% of all exports with the major export markets being Italy, Belgium, Germany, the United States, and the United Kingdom.

The country lacks a clear direction with regard to specialization unlike other Asian countries like Malaysia or Vietnam that demonstrate a significant state-led drive in encouraging the manufacture of electronics and related products. As highlighted by the Governor of the Central Bank, Dr. Nandalal Weerasinghe Sri Lanka’s geographic location situated right in the middle of major shipping routes has the potential of being a major logistics hub. Two thirds of the world’s oil and one third of its bulk cargo are reportedly transported across the Indian Ocean. He further elaborated that port activity and logistics are key areas which has the potential in bringing in the much needed foreign exchange whilst encouraging exports.

The rupee’s value versus the dollar decreased last year as a result of the government’s removal of the currency peg during the height of the global financial crisis. The anticipation was that a flexible exchange rate would eventually assist in increasing exports. The outcome of this decision’s is yet to be ascertained since the export figures do not reflect the desired outcome. However, although exports are not immediately on the rise, this move will boost the manufacturing industry and aid in extending the value chain.

YOY Positive Growth in March 23 for Products & Services

  • Tea exports (12% of all exported goods) rose 16.34% year over year to US$ 110.15 Mn.
  • Electrical & Electronics Components climbed by 18.35% YOY to US$ 45.54 Mn, while Rubber increased by 6.01% YOY to US$ 91.19 Mn
  • Products containing activated carbon rose 1.81% year over year to US$ 14.02
  • Spices and essential oils saw a 38.77% increase to US$32.57 million.
  • The price of seafood rose 14.57% to US$25.71 million.
  • Ornamental fish exports rose by 50.63% to US$ 2.38 million.


Services & Goods with YoY Negative Growth in March

  • Apparel and textiles have declined by 10.1% year over year to USD 416.17.
  • Products made from kernels and fiber declined by 24.96% and 15.10%, respectively.
  • According to estimates, the value of exports of transport and logistics will drop by 37.04% to US$ 40.25 Mn.

Exports to the UAE and Italy have performed better than expected compared with the same period (Jan to March) last year, whereas all other destinations have seen a decline in export revenue. It would be beneficial in conducting a thorough study in ascertaining the export trends and demand behavior of products exported in order to formulate strategies for growth. This would be beneficial for the logistics sector in order to develop products and services to cater to such needs.

Organizations must develop alternatives such as value-added services aimed at retaining current clients as new market opportunities are few and far between. Taking into account that the population of 20 million people living on the island are facing difficulties due to the current economic crisis the logistics industry need to be attentive to changes in the market, client liquidity and exchange rate variations and strategize accordingly.