Tea exporters in cash and logistics crunch due to port strike

July 20, 2006 (LBO) – A backlog of tea shipments and falling prices due to trade union strikes at the Colombo port has vessels bypassing Sri Lanka and tea exporters worried over tight cash flows. Trade union action and go-slows at the port over a wage hike entered its tenth day on Thursday, with no solution still in sight.

Some vessels that called over at the port have only had time to unload cargo and not take on anything due to international delivery schedules and commitments, Avi de Silva, Vice Chairman of the Colombo Tea Traders Association told LBO on Thursday.

“Some callers based on reports that there may not be a quick resolution to this, have said they will not come next week; so quite a bit of shipments have been held up.”

“There would still be space constraints on ships if they do come back due to the huge backlog that has built up and if this strike goes on till next week, we are looking at serious logistics issues like warehousing space,” de Silva said.

There are still no estimates as to the volumes of tea held up at the port, but buying is slowing down at the weekly Colombo tea auction, as exporters’ cash flows get squeezed.

Most exporters sell on weekly cycles, but uncertainty over disposing the large volumes of stocks and realising proceeds, is also leaving banks wary at extending much credit, one exporter said.

Problems of cash flow in turn impede further buying at the auctions, added to by a lack of warehouse space due to stocks not moving.

Tea brokers say they have fewer queries ahead of next week’s sale. About five to six million kilos of tea is sold each week at the Colombo auction.

Prices have been mixed at the weekly sale, even with the strike, with high grown teas doing better due to world shortages than grades of low elevation teas.

“High grown teas are actually doing fairly well at this time of the year due to product quality and with the shortage of teas in Kenya,” Yshan Fernando, Managing Director of Forbes & Walker Tea Brokers, told LBO.

High grown teas sold at about 200 rupees a kilo on average this week and last week, with prices better this year than last due to drought driven shortages in Kenya.

“Low grown teas took a dip due to a combination of the port strike and the situation in the Middle East. Prices fell to about 190 rupees a kilo levels this week from an average of about 195 rupees last week.” But if the strike goes on till next week, tea brokers expect a downward pressure on prices in most elevations.