PB Karandawela introduced innovative strategies to counter cartels

(Excerpted from the Merrill Fernando autobiography)

Shipping, a crucial aspect of the high volume tea export business, was controlled by Shipping Conference Lines, created during the colonial era in order to confine export rights to British vessels. It was, essentially, a cartel, which both suppressed and oppressed the local entrepreneur who posed even a minimal threat to the multinational. This tightly-controlled operation effectively prevented other companies from trading, not just in Ceylon but in other countries as well.

There was a Conference line to every destination and since it had very few ships, sailings were intermittent and, therefore, highly detrimental to our trade with Australia and New Zealand in particular. It was not unusual for a vessel scheduled to sail in January, to show up as late as April. Meanwhile, our export cargo would pile up, eating into warehousing space, whilst our overseas customers, running short of stock, turned to Indonesia for urgently-needed tea.

Though there were non-Conference Line vessels calling at our port, they were not permitted to carry our cargo, whilst they were also denied admission to Shipping Conference Lines. My numerous appeals to the regulatory bodies for a relaxation of these adverse conditions, went unheeded for a long time.

Eventually, following incessant lobbying, largely on my part, as my trade with Australia and New Zealand was seriously under threat, Messageries Maritimes was permitted to carry 250 tonnes of cargo.

However, that space was commandeered by Brooke Bonds for Bushells of Australia, in another classic instance of a multinational’s suppression of a local entrepreneur. I was aware that sometimes large multinationals booked shipping space and held it till the last minute, thus denying the local exporter the opportunity of booking space to ship his produce. I had to fight tooth and nail for an allocation of 30-40 tonnes.

During this period local companies dominated the exports to Middle Eastern countries, which imported substantial volumes of Low-Grown tea, whilst the multinationals dominated markets in Europe, USA, Canada, South Africa, Australia, and New Zealand. At that time Ceylon had to depend on the UK for the disposal of around 65% of total national production, which included about 50 – 60 million kg shipped direct to the London Auction, annually.

Whilst Ceylon had her own ships, operating under Ceylon Shipping Lines, of which the government of Ceylon was the major shareholder, the stranglehold of the UK-Ceylon Conference Lines was such that our ships were not permitted to carry any tea to the UK. The entire volume of tea exported annually to UK, had to be carried on ships owned and run by the UK-Ceylon Shipping Conference.

Shipping Conference Lines also effectively prevented intervention from any other shipper. It had a two-way advantage in that after discharging its cargoes of tea at designated ports in the UK, the same ships returned to Ceylon with fertilizer, machinery, and other goods destined for the plantations. In my view, it was inconceivable that Ceylon-owned ships should be debarred from carrying Ceylon Tea, the only large volume export from the country that identified Ceylon globally. Those who represented Conference Lines were, mostly, our own people, though!

Assistance from high places

Fortunately, the then Minister of Trade and Commerce (1968-1970), a member of Dudley Senanayake’s Cabinet, was my former school teacher, Hugh Fernando. I made my submission to him, not on the basis of soliciting a personal favour, but seeking relief on behalf of all exporters who were being adversely affected by the shipping restrictions. The Minister accepted my arguments and immediately instructed the Shipping Corporation to carry this cargo only in our vessels. His decision made headlines in the papers the next day. It was a bold step that outraged vested interests in both the UK and Ceylon.

Soon afterwards, the Chairmen of two companies representing Shipping Conference Lines, Chari de Silva of Aitken Spence and Basil Jesudasan of Carsons, came to meet me to canvass their case. One of their arguments was that as a result of the Minister’s new ruling, Ceylon would not be able to sell its tea to the UK. Their view was that I had misled the Minister. However, I stood my ground whilst the Minister’s decision also remained unchanged. Soon afterwards, Ceylon Shipping Lines was granted membership of Ceylon-UK Conference Lines.

Hugh Fernando – supported me in my battles with Conference Lines

In this affair I also had the assistance of a very competent, unbiased, and courageous civil servant in P.B. Karandawela, Permanent Secretary to the Ministry of Tourism and Shipping under Minister P.BG Kalugalle, who moved swiftly to implement the Minister’s directives. Karandawela is still remembered by the old-timers in local shipping circles, as the man who introduced innovative strategies to counter the strong-arm tactics of Shipping Conference Lines.

During the 1970s Karandawela was the Chairman of Air Ceylon and the Ceylon Transport Board, as well as the founding Chairman of the Ceylon Shipping Corporation. He was a genuine logistics pundit.

Over dinner one day with Minister Fernando, I explained to him the limitations imposed on the growth of the local entrepreneur by the colonial trading culture and conventions.

Apart from Shipping Conference Lines, a creation of British interests to exploit our shipping to their advantage, I also explained to him how the disparity in freight rates between bulk exports and packets, inhibited the local exporters’ ability to export value-added tea under locally-owned brand names. Obviously, whilst I stood to gain personally by a rational revision of the rates, so did all other exporters who were interested in developing exports of packeted tea and own brands. This was before the tea bag and the containerized cargo era.

The Minister, however, pointed out that the shipping companies would strongly resist any revision of freight rates. Instead, he revised the export duty on tea by 15 cents per kilo on packeted tea, in order to correct the freight rate disadvantage. It was also a decision which could be implemented overnight, with favourable outcomes to the exporter of value-added tea. Shipping Conference Lines, with the approval of the Ceylon Tea Traders Association (CTTA) committee, responded with equal speed, convening an emergency meeting and increasing the freight rate on value-added tea, by 15 cents per kilo, thus neutralizing the benefit gained by the duty reduction.

Such was the influence of the shipping cartel and the CTTA, whose members were largely locals. However, I continued my campaign against the Australia/New Zealand cartel until the freight rate to Australian ports dropped from USD 3,600 for a 20-foot Container Load, to USD 1,400.

The British dominance of the trading world also extended to insurance, another vital ancillary to export. The first local insurance company was ‘The Ceylon Insurance Company Ltd.,’ which, at first, was unable to compete on equal terms with the long-established British insurance companies. However, with other insurance companies being gradually incorporated, the British hold on this aspect of trade was eventually loosened.

A matter of interest that many, even those in the tea industry, may have forgotten or lost sight of, is that the Agency House Investigation Commission appointed in or around 1971, by the United Front Government, highlighted, among other matters, the control exerted, both directly and indirectly, by multinational interests in Ceylon, on shipping, banking, and insurance. Arguably, there may have been an element of leftist bias in the manner in which the report framed its findings but, still, the bare facts spoke for themselves.

I have been very critical of, and confrontational with, many private and State organizations which, through rigid adherence to archaic statutes and conventions, designed specifically to protect British interests, inhibited the advancement of the local entrepreneur. However, I must also thank the few far-sighted politicians and national-minded public servants with integrity, who have had both the political will and the courage to assist me, in many of my trade-related initiatives, launched not solely in my interests, but also in the interests of all local businessmen engaged in the tea export trade and other allied ventures.