Dollar Shortage Hampers Clearance and Logistics at Port

Hasitha22

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  • Aug 28, 2021
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    Sri Lanka is experiencing a major US dollar crisis, threatening the trade shipping industry, as well as investments and overseas education, all of which are denominated in US dollars. Banks are unable to remit funds or release documents in US dollars. Furthermore, due to the Central Bank's strict instructions not to float USDs out of the country, they are unable to accept new international student loan applications or dollar transactions. They've only allowed dollar transactions for students who left last year or before, and new applications for US fund transfers have been turned down.

    Even if student loans are approved, they will not remit funds to overseas colleges, families, or guardians. The banks are unable to predict when this situation will change, though the Central Bank of Sri Lanka (CBSL) recently informed the public that current measures will ensure that official reserves remain ‘above US$ 3 billion by the end of 2021’ however the Central Bank has been a deterrent to the foreign exchange remittances to Sri Lanka and a strong lack of encouragement has been seen, according to commercial borrowers.

    Owing to the current situation nine trade-related Chambers have expressed concern about the difficulties faced by member companies and the broader private sector in obtaining foreign currency to finance much-needed imports due to the current situation of foreign currency scarcity.

    They said lack of foreign currency is affecting the maintaining of credibility in doing business with their suppliers and business associates with whom they transact in foreign currency. “At present, due to the prevailing situation, we face difficulties in obtaining foreign currency to finance much needed imports. These range from not being able to obtain letters of credit to the inability to clear goods that have already arrived in the port due to delays experienced in honouring letters of credit.”

    Indirect importers impacted

    They stressed the impact is felt by indirect exporters and firms providing support services for exports. “We are concerned that while the importers themselves will face immense financial costs in the form of demurrage and other logistics related costs, it will also affect longstanding relationships built with suppliers resulting in a serious and irreversible loss of confidence. Importers are also unable to secure orders due to the inability to agree on a firm payment schedule as required by suppliers. This will seriously impede the availability of essential products especially during the festive period during which consumer demand is typically high for most products. This can cause great hardship to the public at large and may result in a significant increase in the cost of living.”

    They also pointed out that the banking system will also face difficulties as a result of not being able to meet the needs of their longstanding customers and could eventually experience a serious loss of reputation if they are compelled to dishonour committed payments. The Government will also experience a loss of revenue due to a drop in import duties at a time when increasing Government revenue is of paramount importance.

    The economic chambers urged the Government to finalise the negotiations on some of these arrangements and announce them with certainty as soon as possible, with a clear indication when such facilities will become available. If these actions, as envisaged by the recently announced Roadmap of the Central Bank of Sri Lanka, are not materialising within the anticipated time-frames, they earnestly requested the Government to reconsider other alternative courses of action available to the country such as engaging with IMF to explore the funding options they can offer.

    Apparel sector affected

    In an interview with Ceylon Today, Trico Group Managing Director Gamini Kannangara explained the apparel sector, which receives revenue in dollars, reserves its dollar account to repay its suppliers in order to import raw materials and manufacture the final product for export. “There is no way to convert those dollars into rupees. If you want to buy dollars, you'll have to pay Rs 245. Those who take it in rupees and convert it to dollars, are bascially stranded because the Bank does not open LCs to repatriate US dollars. Businesses such as importers of food and commodities are unable to make payments in US dollars. People are cutting back on exports as a result of the current crisis, resulting in high commodity prices.”

    There was no room for operators to revive the backlog after being under Covid-19 locked down on four occasions between March 2020 and now. He noted that the impact was felt for three months at each lockdown. "The only way out is to go to all the banks and sit and talk." His view and suggestion was meeting with those international lenders and working out a five-year plan to pay only the interest on the loan and pay the capital after five years.

    Over the IMF, the Government still remains divided while the ongoing acute foreign exchange shortage and severe economic crisis eats into the economy. Foreign exchange reserves, it is said have plunged by over a half in one year through July to just USD 2.8 billion.

    All these shortcomings are penalising the common man who has been taxed, as freight charges have increased by 500 per cent and cargo clearance has increased by 5 per cent. Exchange control does not allow other currencies to be utilised such as Indian rupees in Sri Lanka.

    Sri Lanka's annual exports of 300,000 containers (20 footers) remain the same while annual imports of 700,000 containers have dropped to around 400,000. There are approximately 300,000 exporters in Sri Lanka and many of those who deal in Sri Lankan rupees are unable to complete the US transaction in order to send funds to their primary exporters.

    Between March 2020 and now, Trico has paid over Rs 200 million as demurrage, according to Kannangara, who added that the economy has sunk beyond comprehension.

    Kannangara said that converting LKR to USD is impossible because the corresponding bank does not deal in that currency. Even if there are 'loops,' the corresponding banks in India do not accept Sri Lanka rupees when dealing with local currency.

    Banks refuse to open LCs

    Banks are refusing to open letters of credit, clearing agents are unable to accept payments in dollars, and over 3,000 containers are stranded at the port. The documents cannot be cleared. Also, at the moment, the buying price of a dollar is 245 rupees, while the selling price of a dollar is 202 rupees, and who wants to do business in this manner, he asked.

    In the midst of all of this, there is a staff shortage at the port, and cargo clearance is taking longer than expected. The clearing agents are also stuck due to the delays.

    Tania Polonnovita Wettimuny, past chairperson of the Sri Lanka Logistics and Freight Forwarders Association and Group MD of IAS Holdings (Pvt) Ltd, said that the new normal has made the port business more difficult. Even the US and other major players have lost business as a result of the pandemic, but the dollar crisis in Sri Lanka could have been avoided, she added. The banks aren't clearing the LCs, which will cause major problems in the coming days, she said. The only way out is to resolve the currency issue, and import restrictions should be lifted.

    She also mentions that corruption in the port and customs sectors is well-known, and that the only way to combat it is automation and the paperless the system. Despite the fact that this is the way forward, there appears to be less interest in doing so. She went on to say that incentives should be given to customs officials for each cargo entry. "Service providers cannot work with bank restrictions, and foreign parties should not be concerned about the uncertainty that exists in business in Sri Lanka. Parties should work together to determine exchange rates at this time until the tourism sector and other sectors stabilise.”

    Because the country is financially unstable, it appears that over 70% of the business and revenue is generated outside of the country. Some business people do not send remittances to Sri Lanka, preferring to open businesses elsewhere, and the profits from tea and other large businesses are deposited outside the country.

    Only accept dollars

    The Sri Lankan Government has announced that cargo clearance and freight forwarders will only accept dollars and that they will be able to do business and repay in dollars, but that those who receive only in local currency will be unable to repatriate dollars to the suppliers.

    It is also rumored that around 10,000 containers have not been cleared at a private terminal due to the dollar crisis, resulting in a massive demurrage while the Government-run terminals are accepting letters from top politicians and high ranking officials to clear their cargoes without any hindrance.

    Agents will report the crisis to principal parties and the next time there is no space for cargo to Sri Lanka, imports will drop, and they will eventually hit exports as well, as doing business in Sri Lanka will be on high alert. Principal exporters have already turned their backs on Sri Lanka.


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    Ceylontoday