25 April 2022

Sri Lanka has been grappling with its worst energy crisis in over seven decades, caused by the shortage of foreign exchange. The fuel shortage has resulted in long queues of vehicles lining up outside gas stations, industries that rely on diesel to operate at a suboptimal level, and frequent power cuts.

By Katie Zeng Xiaoju; North, South and Central Asia Analyst

The Sri Lanka government has started fuel rationing for vehicles and imposing power cuts for up to 13-hours daily. There were daily protests in the country demanding the resignation of President Gotabaya Rajapaksa and his government. Over the last two weeks, protesters demonstrated in various locations in Colombo, setting fire to buses, pelting stones, and blocking major roads leading to Colombo.

Sri Lanka’s financial crisis stems from a critical foreign currency shortfall, resulting in a currency devaluation, making traders unable to finance imports. Not only that, but the country’s foreign debt has also doubled since 2010. Due to the 2019 Easter bombings and Covid-19 pandemic, their tourism sector has not recovered. The Russia-Ukraine war has further exacerbated the fuel prices with the country’s stocks running out.

With a shortage of foreign exchange, essential supplies, including food and medicine, are running out. The price of petrol and diesel doubled within a month. The cost of LPG, commonly used for cooking by residents in urban areas, has tripled this year, forcing people to turn to kerosene. Daily protests have erupted among the thousands of motorists queueing up for scarce fuel. More recently, there have been protests outside the president’s residence, demanding his resignation.

The Sri Lanka government has announced that it will work with the International Monetary Fund and is seeking legal help to restructure its debt. With more protests across the country, the president declared a state of emergency and a nationwide curfew. Hundreds of protesters clashed with police outside the president’s residence. Police fired tear gas and used water cannons to disperse crowds after protesters set fire to police vehicles and threw bricks at officers.

The latest pain point is a severe shortage of container trucks at Colombo Port, driven by transporters’ inability to secure sufficient fuel supplies for their fleet deployments. Colombo handles the bulk of cargo transshipped in and out of the region. Container transport service providers have substantially scaled down truck deployments, disrupting Colombo’s inter-terminal transfers critical to transhipment loads. The clearance of cargo at Colombo Port has already been prolonged with importers or their agents unable to pick up delivery orders promptly amid lingering foreign exchange woes, another supply chain casualty of the economic challenges sweeping the island nation.

As the political and economic woes in Sri Lanka remain uncertain, Colombo Port will likely continue to face severe truck shortages, which will disrupt the movement of containers between Sri Lankan terminals, impacting exporters and importers.  

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