Sri Lanka on perfect track to reach the maritime, distribution hub of South Asia
A Strategical position of Advantage
Asia Pacific has become the fastest-growing region in the world with its strong population growth, rapid urbanisation and emerging growth of the middle class. The growth owes to shifts in the industrial and retail sectors, and continual advancement of technology and automation. Strategically positioned in the Indian Ocean with a well-established air and sea connectivity, Sri Lanka has become an important trans-shipment hub for the South Asian region, as well as for many emerging markets nearby. Sri Lanka aims to transform into Asia’s leading maritime and distribution hub by leveraging logistics to expand indirect export revenue. Besides, it aims to provide backward and forward linkages for industries that would expand export processing, trading and manufacturing in Sri Lanka.
Despite being a small economy with GDP worth US$93.45 billion in 2018, Sri Lanka’s total merchandise and service exports amounted to US$16.14 billion in 2019. The major container port of the country, located in the Western coast, is South Asia’s only deep-water container port terminal, accommodating vessels larger than 18,000 TEUs, with a current total throughput of 7.05 million TEUs.
Sri Lanka Stepping Up its Game in the Warehouse & Logistics Sector
Emerging global trends in logistics and warehousing have influenced most Sri Lankan companies to outsource their logistics functions to third party logistics (3PL) providers. They aim to enhance their supply chain performance by creating strategic and operational values such as inventory and prime cost reduction. Warehousing is the most commonly outsourced function in the logistics market in Sri Lanka. As a result, 3PL companies have gained significant importance in the logistics industry, for their efficiency in integrated logistics services according to customer needs. Furthermore, the growth of FMCG, retail, white goods, e-commerce and engineering are also demand-drivers for warehousing in Sri Lanka. The e-commerce sector recorded a growth of 34% year-on-year, as of July 2018, although it is only 0.4% of total annual retail sales (US$10 billion). It is expected to grow by US$400 million by 2022, further accelerating demand for 3PL logistics services.
At present, major warehouse corridors are located around Colombo Port (Colombo 01, 02 & 11), Wattala - Peliyagoda, Ja-Ela – Katunayake and Ratmalana. Of these Ja Ela – Katunayake is the largest submarket, which spreads along the E03 Express Highway connecting the International Airport with the harbour Port. The Port micro-market is defined by two distinct micro-markets, each of which is driven by export (Port related) and in-city consumption (local demand), which are comparatively smaller due to higher land prices and lower product volume handled by occupiers.
At present, most warehouse structures are Grade B. While the overall warehouse stock of Grade A and Grade B totals to 7.41 million sq. ft., Existing Grade A stock are recent additions to existing locations and are structured to age for 5 to 6 years. Major owners/developers for warehouse spaces in Sri Lanka are Hayleys Advantis, Global Park and DNS Warehouses. A number of warehouses are located within manufacturing facilities and export processing zones, administered by the Board of Investment of Sri Lanka (BOI). However, there is only a limited number of well-established private industrial/ logistics parks catering to the unlimited warehousing demand by domestic-driven products. The warehousing market is fragmented at present and is driven by select products such as tea, apparel, timber, FMCG and other retail products. Expo Freight Logistic (EFL) is one of the major 3PL players in the market, catering to noteworthy international brands, including Marks and Spencer’s and Victoria’s Secret. Meanwhile, John Keells Logistics (a 3PL arm of John Keells Holdings), Hemas Holdings and Daraz (e-commerce player) are considered major players/ tenants in the warehouse market. Demand for grade B/ B+ spaces remains higher than Grade A, as most manufactures cater to products that do not require high specification. With an increase in export of perishables, especially to the Middle Eastern countries where Sri Lanka exports fruits and vegetables, including banana, mangosteen, rambutan, green chillies, drumstick, red onion, etc., there is an increasing demand for cold storage spaces in the market.
What does the future of warehousing look like?
Concepts such as smart logistics and smart warehousing have become popular around the global warehousing market. However, these concepts are still nascent to the Sri Lankan market, as most warehousing operations in Sri Lanka are labour intensive and lack updated knowledge of the latest technology. The growth of the overall industry and competition will soon require Sri Lanka to adapt to similar concepts to address issues like shortage of labour, lack of control, coordination and cooperation. Digitisation of warehousing operations would be an effective strategy to minimise human intervention and enhance productivity, thereby achieving effectiveness and efficiency. This will further aid Sri Lanka’s vision to transform itself into a logistics hub, and thus, become part of global supply.
- Shazana Zarook, Executive Research
