Alarmed by the rapidly shifting global situation, exporters in Colombo are bracing themselves.
On Day 32 of the Middle East conflict, the fallout continues to ripple across economies far beyond the immediate region. It is being felt sharply in Sri Lanka as well.
Fuel prices have surged by 35 percent, while electricity costs are set to rise by an average of 10 percent on April 1, implemented across different consumption slabs. In a bid to manage limited resources, the government has mandated a four-day work week, designating Wednesdays as public holidays. Fuel and electricity rationing measures are already in place, extending even to operational limits on air conditioning systems, which must be shut down by 3 p.m. in government and affiliated institutions.
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Disappointing too was the loss of two major events planned this March to bring global players in close connect with manufacturers, and an occasion to highlight the gains in the industry in 2025. The two-day Cascale forum, scheduled to open on March 30, and an Investors Forum organized by the Board of Investment for the same day, were both postponed amid mounting logistical challenges.
Exporters said that the decision reflected the gravity of the situation; postponing the events was unavoidable.
Renuka Weerakone, director general of the Board of Investment of Sri Lanka, noted that while the events were expected to attract a large number of global participants, travel disruptions—especially the widespread cancellation of flights from the Middle East—made it impractical to proceed as planned.
“A lot of global players and dignitaries were coming here, but connectivity was becoming a major issue due to the high number of flight cancellations,” she told Sourcing Journal. Smaller delegations have still managed to visit, she added, emphasizing that the investment forum has not been cancelled, but postponed. It is now expected to be combined with Sri Lanka Expo 2026, scheduled to take place from June 18 to 21, 2026.
Meanwhile, the Cascale event has been rescheduled for March 17-18, 2027.
“This decision follows a thoughtful review of ongoing disruptions to international travel and safety concerns affecting many of our attendees, speakers, sponsors, and staff. Ensuring the safety of everyone involved remains our top priority,” Cascale organizers said in a statement.
Export data for the last two months show a worrying downturn. Apparel exports to the European Union declined by over 19 percent in February, while year-on-year figures show an 11.46 percent drop from the previous year. This follows an already notable nearly 7 percent year-on-year decline in January, signaling a troubling trend for one of Sri Lanka’s most vital industries.
The implications are significant. Exports have played a critical role in sustaining economic growth, stabilizing the currency, and supporting recovery following the economic crisis of 2022. Any sustained downturn threatens to undermine these fragile gains.
“I don’t want to say there is panic, but people are afraid,” said Felix Fernando, chairman of the Joint Apparel Association Forum (JAAF) and CEO of Omega Line Ltd. “There are a lot of uncertainties. Prices have gone up by more than 30 percent over the past four weeks, and fuel rationing has been introduced.”
Despite the unease, Fernando emphasized that the current situation differs fundamentally from the crisis of 2022. “At that time, it was an internal issue, so people were much angrier. Now it is external—beyond our control. It is also affecting other sourcing countries in the region in a similar way,” he said.
Amid these challenges, there has been a notable degree of coordination between the export sector and the government. Industry representatives, working through the Chamber of Commerce are having ongoing discussions with authorities.
One outcome has been an agreement to prioritize fuel allocation to export industries, following essential sectors such as food and healthcare.
While many companies are incurring losses, Fernando noted that no factories have shut down. Instead, firms are managing costs through careful planning and resource allocation. “Whether it is power or diesel for transportation—because many workers rely on buses organized by manufacturers—the situation is being closely monitored,” he said.
The greater concern, however, lies in the outlook for global demand. “We are expecting demand to fall further this year, and possibly into next year as well,” Fernando warned.
Sri Lanka’s vulnerability is compounded by its economic structure. In 2025, the country’s highest foreign revenue came from remittances originating in the Middle East, placing it at direct risk from instability in that region. At the same time, the government remains constrained by the conditions of its bailout agreement with the International Monetary Fund (IMF), which limits its ability to introduce subsidies. The bailout funds are being released in stages, contingent on Sri Lanka meeting specific conditions related to tax reforms, debt restructuring, and governance improvements. Of the total package, $2 billion has already been disbursed, with an estimated $1 billion pending.
An IMF delegation is currently in the country conducting a review of the program.
Yohan Lawrence, secretary general, JAAF, highlighted the compounding nature of the cost pressures. “Costs are rising significantly due to the combined impact of fuel imports, energy expenses, and a sharp increase in sea freight rates,” he said. Shipping costs per container have risen by between $1,000 and $1,500 in recent weeks, while air freight rates to the United States have climbed from $3.85 to $6.50 per kilogram.
Import freight costs have also surged, increasing by approximately 75 percent from China and 40 percent from India over the same period. These increases are placing significant strain on exporters, particularly small and medium-sized enterprises that are struggling to absorb the additional costs while remaining competitive, he said.
Even larger companies are feeling the pressure. MAS Holdings Ltd, one of Sri Lanka’s leading apparel manufacturers, said it is closely monitoring early signs of strain, particularly in freight, fuel surcharges, and raw material costs. A company spokesperson said customers are being kept informed, and any necessary adjustments will be handled on a case-by-case basis.
“In Sri Lanka, where most of our manufacturing takes place, the government’s decision to prioritize fuel supply for export industries has helped ensure continuity in production and logistics,” the spokesperson said.
However, the challenges are not confined to Sri Lanka. MAS operates in multiple countries, including Bangladesh and parts of Southeast Asia, where governments have introduced similar fuel management and energy-saving measures. While these have led to occasional delays and increased logistics costs, they remain manageable for now.
The company is taking proactive steps to mitigate risks, including building its own fuel reserves and working closely with logistics partners and customers to maintain operations. “Despite the volatility in global shipping routes and fuel prices, we continue to meet our delivery commitments,” the spokesperson added.
Other major industry players are also closely monitoring developments. Hasitha Premaratne, managing director, Brandix Apparel Limited, said the extent of the impact will largely depend on how long the conflict persists.
“If the situation de-escalates within the next two weeks, disruptions will likely be minimal, as we have secured fuel stocks and are operating according to plan,” he said. “However, a prolonged conflict could increase costs across petroleum-based raw materials, freight, and utilities, while also potentially softening demand and order volumes.”
Premaratne said the company is actively engaged in scenario planning and is working closely with customers and suppliers to enhance supply chain resilience. He also noted that previous investments in sustainability are proving beneficial under current conditions. Many of Brandix’s facilities operate primarily on solar energy and employ advanced energy optimization systems, helping to maintain continuity while conserving resources.
Even before the current crisis, the industry was undergoing structural changes.
Efforts have been underway to strengthen domestic supply chains and reduce dependence on imported raw materials. Weerakone pointed to ongoing initiatives to expand textile manufacturing capacity within Sri Lanka, particularly along the east coast, as part of a broader push toward backward integration.
“Sourcing raw materials is becoming increasingly challenging, so we are focusing on developing our own capabilities,” she said. “Reducing reliance on external suppliers is now seen as a strategic priority.”
At the same time, the industry has not yet seen a significant decline in order volumes, though there has been a rise in joint ventures with foreign partners. These collaborations are viewed as a way to strengthen resilience and access new markets amid global uncertainty.
Major companies are also adjusting their strategies in response to shifting demand patterns. MAS Holdings, which reported a turnover of $2 billion in 2025 and operates 53 manufacturing facilities globally, has undertaken a series of operational changes, including the closure and streamlining of certain facilities.
“The broader apparel environment remains challenging, with softer demand in key markets such as the United States, the European Union, and the United Kingdom,” a company spokesperson said. “This has led to flat or reduced order volumes across the industry.”
As part of its response, MAS is optimizing its global footprint and aligning production capacity with demand. Recent closures in Haiti and the Dominican Republic, as well as adjustments to certain facilities in Sri Lanka, are part of this strategy. The Methliya facility, located within the MAS Fabric Park, is being repurposed to strengthen the company’s fabric and material capabilities, which are becoming increasingly important.
“Production from the facility is being redistributed across the company’s network to ensure continuity. Meanwhile, the closure of the Thurulie factory was attributed to long-term climate risks, following repeated weather-related damage that made continued operations unviable. Employees affected by these changes are being offered opportunities within the MAS network, with additional incentives for those who choose to transfer and compensation packages exceeding statutory requirements for those who do not,” the spokesperson said.
While there is a general sense of uncertainty described by exporters as a Three-Way-Challenge—rising fuel and electricity costs, delayed shipments of raw materials, and slowing orders from overseas buyers rattled by global inflation—there is a quiet sense of purpose that many manufacturers explain has characterized the industry. This includes the focus on sustainability, a strong niche that continues to attract brands like Nike, Victoria’s Secret, Next and the United Kingdom’s Developing Countries Trading Scheme, which allows for 100 percent foreign inputs.
