Ports caught in economic maelstrom

The first regular container service from Kattupalli Port will commence from September 19 to Singapore and Port Klang, said a trade communication from the port. This should cheer potential shippers who had to wait nearly eight months after the official inauguration of the port to get the first shipping service.

However, things are not likely to be rosy in the immediate future given the continuing global economic slowdown. “It may not be the right time to start a container terminal as there is no visibility of cargo. However, we are well prepared for when the revival happens,” said a senior official of Katupalli Port.

The port, inaugurated on January 30 by Tamil Nadu Chief Minister J. Jayalalithaa, was developed by L&T Shipbuilding Ltd, a joint venture between L&T and Tamil Nadu Industrial Development Corporation. International Container Terminal Services, a global terminal operator, subsequently joined as the operations and maintenance partner.

All ports hit

The slow down is not confined to Katupalli Port alone. Two private terminals of the neighbouring Chennai Port have been facing dropping volumes consistently over the last few months. Despite this, the Chennai port is going ahead with a third terminal — a smaller one scrapping the mega terminal plan.

The Ennore port, which is adjacent to Katupalli, too, is planning a container terminal.

While the demand-supply dynamics appeared buoyant three to four years ago with the annual volumes at Chennai Port growing at 20 per cent plus, the subsequent domestic economic slowdown, Euro zone crisis and end-user industries cutting down on the proposed investments impacted the demand side, even while new capacities got added at Krishnapatnam, Vallarpadam, Kattupalli and Karaikkal ports, said K. Ravichandran, Senior Vice-President, ICRA.

There is a capacity glut in the Southern region now, which is set to worsen over the next three to five years with the proposed developments at Chennai and Ennore. The extent of recovery in the domestic economy and exports could determine the pace of absorption of the surplus capacity over the long term, Ravichandran added.

Ports development projects are long-term in nature with the concession periods typically in the range of 30-50 years. A concession period is the time for which the private partner gets the right to develop and operate a project. Hence, project sponsors take a long-term view while bidding for these projects even while knowing that setbacks are possible in the intermediate period due to economic shocks.

While Katupalli is ready with a full-fledged terminal, both Chennai and Ennore ports are going ahead with their plans on the pretext that the future of shipping in India lies in containerisation. In India, less than 10 per cent of cargo moves by containers, while in some of the developed countries it is over 50 per cent.

Two years ago both Katupalli and Ennore port failed to take advantage of the commissioning of the container terminals for various reasons. Katupalli saw delay in commissioning due to internal reasons, while the container terminal project at Ennore is now in the tender stage after the private investor failed to source funds for the project in the first instance, two years ago.

Kattupalli’s Connectivity issues

Kattupalli met its fate purely for internal reasons, J. Krishnan, Chairman, Logistics Committee, Madras Chamber of Commerce and Industry, said, adding that there was no marketing effort by the port and the trade awareness of emerging Kattupalli was miniscule.

The half-hearted attempt to hasten the requisite Customs notifications also was a serious cause of concern with regard to the professional ability of the port management as this was a new venture for L&T and the domain knowledge was not convincing to the trade. There was no effort to woo trade to take advantage of the problems being faced by the port users at Chennai.

Ennore’s case was that of greed. The bidder was totally out of depth for the royalty-sharing formula and the lenders saw through the unviability of the project given the ‘extraordinarily’ high share of royalty. “Ennore was a tragic case of missed opportunity on financial miscalculations,” said Krishnan.

Having failed in its first attempt to put up a container terminal, Ennore has now adopted a cautious route for scaling down the proposal and ensuring that the project takes off under the current difficult circumstances. If the economic recovery happens in the next two years Ennore may find itself in a better position to meet the demand, he said.

On the Chennai Port’s plans to convert a coal berth into a container terminal, Krishnan said proposal for a small terminal (0.8 million TEU) is again putting pressure on the port management to find some utility for the unoccupied berth due to absence of coal.

The connectivity issues plaguing the Chennai Port is the primary reason for a non-serious bid of the mega terminal. It must be understood that a mega terminal project does not emerge overnight and takes a few years to be fully functional. This was the right moment for setting up a mega terminal but with assured ingress and egress.

Currently there is an oversupply of container handling facilities but two years down the lines a very different scenario may emerge, he said.

As the major ports, wherein container terminals are located, have well-developed back-up systems in terms of container freight stations, rail and road connectivity and availability of shipping agents, they should continue to do well, although new private terminals could snipe at their heels and pose price-based competition, said Ravichandran.

> raja.simhan@thehindu.co.in