In shipping and logistics, persistence pays. After 2 years of increasing congestion and unprecedented increases in freight rates, there are finally signs that the situation is improving. The majority of Asia’s largest ports are finally showing signs of congestion easing, just ahead of the holiday season.
These improvements couldn’t have come at a better time given that maritime freight rates had been on an upward trend since the second half of 2020. As at September 2021, rates had increased by a stunning 292% Year-on-Year (YoY).
While the consensus is that freight rates would not normalize till at least the end of 2022, they also appear unlikely to increase much further at present, given that two of the world’s top container lines have recently pledged to freeze their spot rates and put off any further increases in spot freight rates for containerized cargo. Barring any further unforeseen disruptions, and supported by similar measures from other carriers we could see further improvements in freight rates much earlier than what was initially projected.
Naturally, these developments have major positive implications for Sri Lankan exporters broadly, and apparel manufacturers, and their buyers in particular, as input costs begin to normalize and bottom-line pressure eases across the board.
Unprecedented challenges met with unsurpassed agility
Prior to COVID, Sri Lanka was one of South Asia’s most connected nations – both in terms of shipping and air travel. Given Sri Lanka’s ideal geographic location, and booming tourism industry at that time. This meant on average, Sri Lanka had on average 200 ships on a monthly basis, and a further 78 flights and freighter operations moving in and out of the country on a weekly basis.
At the peak of the pandemic and lockdowns while the port experienced berthing congestion the total passenger aircraft reduced to zero, and eventually 1 ship and then none at all. While those numbers have since improved, in the interim, it was up to the Sri Lankan logistics industry to keep the country’s exporters afloat, by ensuring that Sri Lanka’s manufactured goods made their way to buyers despite every challenge that arose.
The apparel sector – which accounts for close to 40% of Sri Lanka’s exports, had to take the lead in innovating solutions to the crisis. For the first time, air freight was leveraged above maritime routes in order to import the majority of raw materials, and to even export orders that would have been delayed if we waited for the shipping crisis to resolve.
With Sri Lanka entering its most intense lockdown phase, and airports closing, the industry immediately pivoted to partnerships with specialist freighters until passenger and cargo aircraft could resume. With the situation having improved significantly since then, Sri Lanka’s logistics sector has had its mettle tested, and we have proved our ability to meet unprecedented challenges with outstanding agility. Our success in the face of such immense difficulties is no accident either.
Especially for apparel logistics: time is money
Sri Lanka’s trusted reputation as a leading global powerhouse in apparel is the result of multiple factors – our dedication to quality, our investments in our people, and in technology. But the business of apparel is not just delivering quality, it’s delivering on time.
Everyone understands that fashion and apparel are notoriously fast-paced businesses. With apparel accounting for the vast majority of Sri Lanka’s exports, this has meant that Sri Lankan apparel and logistics firms had to collaborate in order to match international requirements. Hence apparel has played a major role in elevating Sri Lanka into its current position among the most agile supply chains in Asia.
Given Sri Lanka’s ideal location, the island attracts feeder vessels from across the region, meaning that Colombo is often the last port of call in Asia before vessels embark to Western ports. Additionally, most of Sri Lankan Apparel’s buyers tend to have forward contracts already in place with major shipping lines, which means that wherever possible, vessels are legally obligated to call Colombo. While providing immediate benefits to the apparel sector, this also creates opportunities for other Sri Lankan exporters as well.
Given that relative to commodities, apparel adds less weight to ships, it is often the final item to be loaded as cargo, meaning that it can also be unloaded faster. Such minor advantages add up to immense time saving at scale. The same is also true for other Sri Lankan exports.
Internally, Sri Lanka’s logistical capabilities are unmatched, and the industry can confidently guarantee that cargo can be moved from any point in the country and transported into an international port and be ready for loading within 24 hours.
Aligned to emerging apparel export opportunities
These capabilities have been supported with strategic policy and process reforms whose success has been championed to a great extent by the logistics partners and divisions within Sri Lanka’s apparel industry. These include key initiatives such as the introduction of technology infrastructure to drive the complete digitalization of documentation around Customs and export processing for Board of Investment (BOI) companies.
Industry stakeholders also joined together to establish dedicated export facilitation centers in order to further streamline customs processing. With the rise of e-commerce, there is also tremendous potential for Sri Lankan firms to also explore B2C export opportunities as well. Here too, proactive reforms have already been implemented in order to completely waive customs levies and standard documentation. Either in partnership with established brands, or working independently, Sri Lankan apparel firms –large and small – can also explore vibrant new commercial opportunities through these newly formed avenues.
Especially in a post-COVID landscape, brands are also looking hard at options for near-shoring. This presents further challenges, and potentially new opportunities – for Sri Lanka’s apparel firms. Given our outstanding reputation on ethical practices, sustainability and specialized expertise, Sri Lanka maintains a strong value proposition in apparel. But what drives near-shoring is the need for brands to maintain costs and reduce risks. Given the unprecedented disruptions that we have all been subjected to over the past two years, this is to be expected.
Given that Sri Lanka’s logistics sector has since demonstrated beyond a doubt it’s agility and resilience in the face of crisis, we can provide buyers with an added sense of security, because they have already seen how Sri Lankan firms will go above and beyond the call of duty to ensure that their goods reach them on time. By driving further reforms, as well as technological and process innovations, we will be able to also offer improved cost structures.
At the same time, Sri Lanka is also ideally positioned to capture one of the largest emerging opportunities in apparel. Over the medium-long term, Asia will not only be home to the world’s largest manufacturing base, it will also be called home by the world’s largest – and increasingly wealthy – consumer base.
If we continue to act strategically, the trend towards near-shoring could also give rise to increased intra-Asian trade, a great deal of which could be funneled through Sri Lankan ports quickly, and cost effectively. Given its emerging role as a nodal point between East and West, we are confident that Sri Lanka’s increasingly sophisticated logistical capabilities will be one of our most compelling value propositions – for fashion and apparel brands and for a much broader cross-section of global industries.
