World Maritime University The Maritime Commons: Digital Repository of the World Maritime University World Maritime University Dissertations Dissertations 2000 A cost analysis of coastal shipping of Sri Lanka Nishanthi Perera WMU Follow this and additional works at: https://commons.wmu.se/all_dissertations Recommended Citation Perera, Nishanthi, "A cost analysis of coastal shipping of Sri Lanka" (2000). World Maritime University Dissertations. 1109. https://commons.wmu.se/all_dissertations/1109 This Dissertation is brought to you courtesy of Maritime Commons. Open Access items may be downloaded for non-commercial, fair use academic purposes. No items may be hosted on another server or web site without express written permission from the World Maritime University. For more information, please contact [email protected]. WORLD MARITIME UNIVERSITY Malmö, Sweden A Cost Analysis of Coastal Shipping of Srilanka By PERERA D. K. NISHANTHI Srilanka A dissertation submitted to the World Maritime University in partial fulfillment of the requirements for the award of the degree of MASTER OF SCIENCE in SHIPPING MANAGEMENT 2000 © Copyright Perera D. K. Nishanti, 2000 DECLARATION I certify that all the material in this dissertation that is not my own work has been identified, and that no material is included for which a degree has previously been conferred on me. The contents of this dissertation reflect my own personal views, and are not necessarily endorsed by the University. ----------------------------- (Signature) ----------------------------- (Date) Supervised by: Tor Wergeland Associate Professor, Shipping Management World Maritime University Assessor: David J. Mottram Adjunct Professor Former Course Professor, Shipping Management World Maritime University Co-Assessor: Anna – Kari Bill Head, Finance & Administration World Maritime University i ACKNOWLEDGMENTS I would like to express my gratitude to the Ceylon Shipping Corporation for nominating and allowing me to attend this course at the World Maritime University. My special thanks to Mr. Sarath Goonewardena, General Manager, Mr. Leslee Hemachandra, Technical Manager and Mrs. Manouri de Silva, Chartering Manager of Ceylon shipping corporation for their support. I would like to extend my sincere gratitude to my supervisor Professor Tor Wegerland for his advice and overall guidance. My sincere thanks to Mr. Tony Noonan, the Course Director of Norwegian Shipping Academy for his help during my studies in Oslo and Malmö. In pursuance of my studies I have met wonderful people who gave me their help in so many ways and I wish to express my deepest sentiments for some of those individuals. Firstly for my friend ‘Neleema’, for being with me especially during my difficult times in Malmo. Niel you are a sister than a friend to me. ‘Dang’ for making me laugh all the time. For ‘Kalpage’ for his brotherly companionship and ‘Nalaka’ for his kindness. Further, I would like to express my thanks to all my friends in class 2000 who are not directly mentioned here. Finally, my specials thanks to my beloved husband ‘Rukman’ who patiently waited for me for 17 months. His support gave me the courage and strength to carry out my studies in WMU successfully. ii ABSTRACT Title of Dissertation: A cost analysis of coastal shipping of Sri Lanka Degree: MSc The importance of coastal shipping in Sri Lanka was not identified until 1990. Due to the political unrest in the north part of the country the land based transport system has been obstructed and the sea became the only connection between north and south. However, the cost of shipping is very expensive compare to the other mode of transport. Therefore this dissertation analyses the cost component of coastal shipping of Sri Lanka in order to find out the reasons for higher costs. A brief discussion is taken about the history of the political unrest in north part of the country, the formation of coastal shipping service and the organisations that were engaged in the coastal shipping. The current situation is explained by discussing about the organisations presently engaged in the coastal shipping and tonnage moved by the coastal shipping. The paper continues with the description of present situation of the land based transport system and by explaining the importance of coastal shipping in future inland transport system of Sri Lanka. The analysis of cost of shipping begins with the discussion of supply of ships for coastal shipping. The supply of ships describes the chartering policy, different types of charter parties and discusses the chartering procedures of ships. After that the paper discusses the selection of vessels for the coastal shipping service and factors that should be considered before selecting vessels. Later the cost of coastal shipping is analysed in order to find out the reasons for higher costs. iii Further more a cost comparison of road transport with shipping transport is done to show that shipping transportation is costly than road transport. The reasons for higher cost are explained later. Finally the paper analyses the possible solutions for the higher shipping cost at the end and gives the recommendations to reduce the cost. Key words: Coastal shipping, charter parties, chartering policies, cost components, cost analysis. iv TABLE OF CONTENTS Declaration i Acknowledgements ii Abstract iii - iv Table of Contents v - vii List of Tables viii - ix List of Figures x List of Abbreviations xi 1. Introduction 1 2. History and current situation 3 2.1. History in Brief 3 2.1.1. The commissioner General of Essential Service 5 2.1.2. Ceylon petroleum Corporation 12 2.1.3. Mercantile Shipping Company 13 2.2. The current situation 14 3. The land based transport system 17 3.1. Road transportation system 17 3.2. Railway Transport system 22 4. Supply of coastal shipping 23 4.1. Types of charter parties 24 4.1.1. Bareboat or demise chartering 24 4.1.2. Time chartering 24 4.1.3. Single of consecutive voyage chartering 26 4.1.4. Contract of affreightment 26 4.2. Shipowners and charterers cost under diffenrent charter Parties 27 4.3. Chartering of vessels- Tender procedure for chartering of vessels 28 4.4. Physical suitability of ships for coastal shipping 29 4.4.1. Draught 29 v 4.4.2. Size/ type of Vessel 29 5. Cost of shipping 30 5.1. Capital cost 30 5.2. Operating cost 31 5.2.1. Manning cost 31 5.2.2. Repair and Maintenance cost 31 5.2.3. Insurance cost 32 5.2.4. Stores and provisions/victualling 33 5.2.5. Administration cost 33 5.3. Voyage cost 35 5.3.1. Fuel cost 35 5.3.2. Port cost 35 5.3.3. Loading and discharging cost 35 5.4. Voyage cost from Port of Colombo to Kankesanthurai for- MV.Lanka Muditha (General cargo vessel) during 1998 35 5.4.1. Cost per ton 38 5.4.2. Cost per ton mile 38 5.5. Estimated voyage calculation for MT. Rangiri (Tanker) voyage from Colombo to Galle 39 5.5.1. Cost per ton 40 5.5.2. Cost per ton mile 40 6. Cost comparison with road transport 42 6.1. Cost calculation 43 6.1.1. Fixed costs 43 6.1.2. Variable costs 44 6.1.3. Cost per ton mile 45 7. Reason for higher costs 47 7.1. Time spent in ports 47 7.2. Cargo imbalance 48 7.3. Higher bunker cost 49 vi 7.4. Government policies and regulation on Coastal shipping 49 7.4.1. Coastal shipping policy of Sri Lanka 50 7.4.2. The ship registration of Sri Lanka 50 7.4.3. Non flag related restrictions 52 7.5. Lack of competition due to Government policies 54 8. Analysis of Possible solutions 56 8.1. Cargo imbalance 56 8.2. Turnaround times in port 56 8.3. Lack of competition 57 8.4. High bunker cost 58 8.5. A cost scenario with improved efficiency 59 8.5.1. Cost per ton 61 8.5.2. Cost per ton mile 61 8.5.3. The additional transport cost 62 9. Conclusion and Recommendation 63 Bibliography 65 Annexes Annex 1 68 Annex 2 73 vii LIST OF TABLES Table 1 Population in the North Province of Sri Lanka by district during 1999 4 Table 2 Ocean distance from port of Colombo to other local harbours 6 Table 3 Vessels chartered by CGES 1990-1999 11 Table 4 Names of the vessels chartered by CPC 1996-1999 13 Table 5 Names of the vessels operated by MSCL 14 Table 6 Ownership of the vessels, presently chartered by CGES & CPC 15 Table 7 Total tonnage moved by coastal shipping 1997-1999 15 Table 8 Number of motor vehicles on registers as at 31st December of eachYear 1989-1996 19 Table 9 Road accidents reported to police in the city of Colombo 1986-1995 20 Table 10 Performance of Railway transport 1995-1998 22 Table 11 Daily operating cost of MV. Lanka Muditha 34 Table 12 Daily operating cost of Sri Lankan flagged cargo Vessels 34 Table 13 Voyage performance of MT: Rangiri from Colombo to Galle 41 viii Table 14 The cargo imbalance of CGES operated vessels 1997-1998 48 Table 15 Table 14 Bunker prices in Asia 49 ix LIST OF FIGURES Figure 1 Provinces of Sri Lanka 7 Figure 2 Ports of Sri Lanka 8 Figure 3 Shipowners’ and charterers’ costs under different charter parties 28 Figure 4 The effect of shifts in the supply curve 55 x LIST OF ABBREVIATIONS CSCL: Ceylon Shipping Corporation Limited CPC: Ceylon Petroleum Corporation KKS: Port of Kankasanthurei LMS: Lanka Marine Services MSCL: Mercantile Shipping Company Limited PPD Port of point Pedro SLFD Sri Lanka Food Department SLPA: Sri Lanka Ports Authority xi CHAPTER 1 INTRODUCTION The term ‘coastal shipping’ is defined as shipping operation taking place within the territorial waters of one country, or between ports of call in one country.