Efficient border agency operations are crucial for any economy, especially for island nations like Sri Lanka, where trade significantly contributes to economic growth. Delays in cargo clearance disrupt the flow of goods, increase costs, and undermine the country’s competitiveness in global trade. These delays impose substantial economic costs that adversely affect Sri Lanka’s GDP, leading to higher operational expenses for businesses and limiting foreign direct investment opportunities. This article will explore the importance of efficient border agency operations in Sri Lanka, provide an overview of the delays in cargo clearance, and examine their broader economic impacts.

The Need for Efficient Border

Agency Operations

The economic ramifications are profound; cargo clearance delays result in lost foreign direct investment (FDI) opportunities and diminished GDP growth. Studies indicate that digitizing trade transactions could enhance processing times by 30-40%, significantly improving trade efficiency and bolstering economic output. Furthermore, these delays negatively impact government revenue collection by creating opportunities for misclassifications and under-declarations.

To address these challenges, streamlining cargo clearance procedures through efficient border agency operations are essential. Implementing digitization across the trade activities can facilitate better monitoring of trade and compliance with regulations, ultimately strengthening Sri Lanka’s position in the global marketplace. By modernizing trade infrastructure and enhancing operational efficiency at border agencies, Sri Lanka can unlock its full potential as a competitive player in international trade.

Overview of Cargo Clearance Delays

In recent times, importers, exporters, and most other stakeholders involved in import and export operations, have faced significant challenges due to cargo clearance delays. Containers are often stuck in custom’s examination yards for days or even weeks, primarily due to congestion. This issue gained tragic prominence when a container truck driver, who had reportedly been waiting in line for three days, succumbed to exhaustion and dehydration. Such incidents highlight the severe human and economic toll of these delays.

Reports indicate that at times many hundreds of containers are stuck at ports, obstructing prime commercial land and disrupting port operations. Long queues of container trucks extend for kilometers as they wait to enter customs examination yards located in Colombo’s busiest areas. Despite the media coverage and public outcry from affected parties, relevant government officials have largely remained unresponsive. It is disheartening to observe that the agencies involved and responsible for these congestions engage in a blame game on each other rather than addressing the root causes of the problem expediting the clearance processes.

One possible solution is to create a large, automated container examination yard away from busy areas. However, successive governments in Sri Lanka have not taken the necessary steps to implement this or other feasible options. This lack of action has allowed existing container examination yards to continue operating without facilitating trade effectively.

This inefficiency not only exacerbates delays but also creates opportunities for corruption, ultimately inflating consumer prices on imported goods for local consumption while losing export competitiveness on imported inputs for exports.

Cargo clearance delays have become a significant bottleneck at Sri Lanka’s Customs examination yards from time to time. These delays stem from several interrelated factors, including bureaucratic inefficiencies and outdated processes. The inadequate infrastructure at customs clearance yards including access roads, exacerbates the situation. Limited space for inspections, insufficient modern scanning equipment, and a reliance on outdated manual inspection processes by relevant border agencies contribute to these substantial delays.

Economic Impact of Delays

in Cargo Clearances

The economic repercussions of these delays are widespread, affecting multiple facets of the Sri Lankan economy.

Below are some of the most significant constraints faced by trade.

1. Slow Border Clearances: Longer processing times at border agencies hinder the ease of doing business.

2. Regulatory Confusion: Multiple government agencies with overlapping responsibilities create confusion for businesses, complicating compliance efforts.

3. Frequent Policy Changes: Constant adjustments in trade policies create instability, making it difficult for businesses to plan effectively.

4. Lack of Real-time Information: Delays in information sharing between agencies lead to uncertainty and slow decision-making.

5. Lost Business Opportunities: Delays result in missed opportunities for production, distribution, and re-export, reducing timely tax revenue for the government.

6. Rising Trade Costs: Additional handling and clearance delays drive up overall trade expenses.

7. Demurrage Costs: Accumulated charges for keeping containers at ports and examination yards strain foreign exchange reserves.

8. Container Shortages and High Transport Rates: Delays cause a shortage of empty containers required for exports and limit the availability of trucks and drivers, increasing transport costs.

9. Wasted Productive Time: Extended waiting times reduce the effective working hours of personnel involved in cargo clearance.

10. Traffic Congestion: Delays contribute to heavy traffic, affecting the general public.

11. Increased Fuel Costs: Trucks burn unnecessary fuel while idling in lengthy queues, further escalating costs.

12. Environmental Pollution: Idling truck engines contribute to increased air pollution.

13. Container Driver & helper Hardships: Truck drivers often endure long waits without access to basic facilities, including restrooms. This situation adds to their challenges and poses potential health risks, as the lack of proper sanitation can lead to serious health issues.

14. Corruption Risks: The urgency to move cargo quickly creates opportunities for corrupt practices.

The Impacts of the challenges mentioned above are as follows;

1. Cost Escalation for Businesses

One of the most immediate effects of cargo clearance delays is the increase in costs for businesses. Goods that remain stuck in the clearance process accrue demurrage fees (charges for storage beyond the allotted free time) and other storage costs. For many businesses, these added expenses eat into their margins, which are often passed on to consumers in the form of higher prices. This has inflationary effects on both local retail goods, impacting the cost of living, as well as on imported items used for manufacturing goods for export, resulting in higher production costs.

Additionally, the longer lead times caused by clearance delays disrupt production schedules, particularly in export-oriented industries. Sri Lanka’s exporters, many of whom operate under tight timelines of international buyers, find themselves at a disadvantage when they cannot deliver goods on time. This not only results in arranging shipments by air, instead of sea incurring a huge cost and financial penalties for the exporter, but also damages exporters’ and Sri Lanka’s reputation in the global market.

2. Supply Chain Disruptions

Sri Lanka’s economy is highly dependent on the smooth functioning of supply chains, particularly for sectors like apparel, agriculture and others, where timely receipt of imported raw materials is essential. When delays in clearing cargo create bottlenecks in these supply chains, it seriously leads to production halts and missed business opportunities.

For example, manufacturers operating under the Board of Investment (BOI) or others, often face production stoppages because imported raw materials are delayed at the examination yards. This disrupts entire supply chains, affecting not only the manufacturers but also downstream industries and consumers. In a globally competitive environment, such inefficiencies erode Sri Lanka’s standing as a reliable production and export base.

3. Diminished Foreign Investment

Foreign direct investment (FDI) plays a crucial role in the development of Sri Lanka’s economy. However, inefficient border clearance including prolonged delays in cargo clearance, creates a perception of a cumbersome regulatory environment, which can deter potential investors. Companies that rely on efficient supply chains may choose to invest in countries with more streamlined processes, leading to a loss of valuable investment opportunities for Sri Lanka.

Sri Lanka’s economic recovery efforts, particularly in the wake of the COVID-19 pandemic and economic crisis, require attracting FDIs to boost key sectors like manufacturing, logistics, and technology. Prolonged delays in cargo clearance operations could hamper these efforts, making the country less attractive to investors who seek efficiency and predictability.

The efficiency of customs and border management is a key factor considered in global logistics performance rankings, directly influencing investor confidence. In the 2023 World Bank’s Logistics Performance Index (LPI), Sri Lanka ranked 73rd out of 139 countries. This index evaluates factors like customs clearance, infrastructure, and logistics services, all of which are critical for smooth international trade operations. Improving customs clearance efficiency would not only raise Sri Lanka’s LPI ranking but also create a more favorable investment climate.

By addressing these customs & border agencies’ inefficiencies, Sri Lanka could significantly improve its attractiveness to FDIs. A better LPI ranking would enhance investor confidence, as smoother trade processes signal a favorable business environment. In turn, this would stimulate economic growth, as increased FDI brings job creation, technological innovation, and infrastructure development. Fixing these issues is critical to unlocking Sri Lanka’s potential as a regional logistics hub and driving future investments.

4. Weakening of Sri Lanka’s Trade Competitiveness

Due to congestion in the customs examination yards, there could be a ripple effect on Colombo Port, creating congestion as containers pile up and disrupt the smooth flow of goods out of the port. This situation could have adverse effects on the country, preventing it from capitalizing on its geographic advantage. As other countries in the region invest in modernizing their trade infrastructure and improving clearance processes, Sri Lanka must take proactive steps to address these issues in order to remain competitive in the global market and avoid serious consequences.

5. Impact on the Fiscal Revenue: Business losses

Delays in cargo clearances significantly impact government revenue, primarily because Sri Lanka Customs is the second largest revenue-collecting agency of the government, responsible for customs duties and taxes on imports and exports. In 2024, Sri Lanka Customs achieved a record revenue collection of over 1 trillion rupees, yet ongoing cargo clearance delays have led to trade resulting in substantial business losses.