Abstract:
The Sri Lanka (formerly Ceylon), an island nation, is strategically located in the South Asian
main sea routes as a gateway to the Far-East, the Middle-East, Europe, Africa and Australia.
This supreme strategic hub location created commendable achievements in seaports in
different magnitudes over time. More specifically, after 1977 economic policy reforms, the
Colombo seaport has earned the reputation as the best managed and the most efficient hub port
in the South Asia and the major transshipment center in the Indian Ocean. This success further
strengthened by the liberalization of shipping in 1990 which was the land mark of changing the
fundamentals of the Sri Lankan shipping and ports related activities. In terms of future
prospects of transshipment activities in South Asia, it can be estimated that, with the size of
vessels growing in the main routes and economic booms in India and China, there will be a
concentration of transshipment activities on a very limited number of strategically located hub
ports equipped to cope with future generation of vessels requirements and ensuring excellent
operation conditions. Therefore it is obvious that the Colombo's qualifications are deemed fit
to become one of these major hub in the South Asia. In this context, the recent growth of the
Colombo seaport is analyzed by using production function, profitability and capacity
utilization approach to get more insights into the seaport operation and to find the possibilities
for further expansion. This new approach may overcome the potential problems of port impact
and cost benefits studies. First this study conclude that the analysis based on the Cobb-Douglas
production function has shown that the operation of the Colombo seaport is an increasing
return to scale during the recent past. The returns to scale depend to a larger extent upon
changing demand for seaport services and corresponding development to cope with this
demand. In view of the rapidly rising tonnage handled and the other services provided for ships
and the related other business activities by the Colombo seaport after the 1977 policy reforms
has reasonable evidences to find increasing returns to scale in our estimated models even with
some what ambiguous data set. Second the profitability based productivity analysis shows the
average profitability measures such as the marginal revenue product of labour (MRPI) is very
high compared to the average wage rate paid for labour (W) and the marginal revenue product
of capital (MRPk) is very high compared to the interest rate (r%) paid for the port development
loans. Furthermore, the small fluctuation of the Lagrange multipliers in the estimated max-min
model indicates the sustainable nature of profitability of operations in the Colombo seaport.
Finally the capacity utilization analysis shows that annual rate of increase of tonnage at the
Colombo seaport has been positive and, the rate has increased at an increasing rate over time
and it shows the high rate of actual to preferred capacity utilization which can be used as a
basis to expand seaport facilities without creating the problem of overcapacity. This new
approach can be use to any seaports in any parts of the world to see their scale of operation,
profitability based on the productivity and capacity utilization aspects before major expansion
in capacity.