We’re building too many ports

The shipping ministry has reportedly decided to establish an International Container Transshipment Port at Colachel in Tamil Nadu at an estimated cost of about ₹27,000 crore. There is already a container transshipment terminal at Vallarpadam in Cochin. About 105 nautical miles south of Vallarpadam, in Vizhinjam, another container transshipment port is under construction.

Colachel will be the third container transshipment terminal to come up about 22 nautical miles from Vizhinjam. In other words, all the three container transshipment terminals will come up within a radius of about 130 nautical miles from Vallarpadam.

Can all the three terminals survive in a highly competitive global container transshipment market? To understand that, one needs to examine the global scenario of container shipping and the container transshipment business.

According to Containerisation International , the world cellular container fleet by April 2016 consists of 5,163 ships of 19.6 million TEU (twenty foot equivalent units) out of which 331 vessels are of 10,000 TEU capacity and above. According to Maritime Strategies International, analysts container shipping would need only about 180 extra ships with a capacity of 10,000 TEU or more between 2016 and 2019 to carry projected incremental trade growth when, in reality, there are nearly 400 ships which are due to hit waters during this period.

While the trade growth in 2015 has been only 2.4 per cent, the world fleet of container ships expanded by about 8 per cent resulting in a situation where too many lines with too much capacity are chasing too little cargo.

Ports are generally categorised as gateway ports and transshipment ports based on the nature of cargo handled. A transshipment port is defined as one where transfer of cargo takes place from a mother ship to a daughter ship. A gateway port is one which depends largely on its export/import cargo base originating from or destined to its primary/secondary/tertiary hinterland. The current market environment in the transshipment business is so depressing that even established transshipment ports are losing traffic volumes.

Singapore-second largest container port in the world and the world’s largest transshipment port could handle only 30.9 million TEUs in 2015 – 8.9 per cent or 2.91 million TEUs less than what it handled in 2014 recording its first decline in throughput since 2009. Ninety five per cent of Singapore’s throughput is transshipment cargo. Hong Kong, the world’s second largest transshipment port, also lost heavily in 2015 as it could handle only 20.1 million TEUs — 2.2 million TEUs less than what it handled in 2014. Singapore attributes the decline in transshipment business to sustained overcapacity, changes in liner alliances, weak trade growth and prolonged lower oil prices.

Major container lines seem to have realised that their strategy of ordering mega container ships to take advantage of the economies of scale without assessing the future demand growth has not met with success. A new strategy unveiled by Maersk Line is to order vessels of 14,000 TEUs so that they could be deployed anywhere in the world, reducing the possibility of visiting transshipment ports on major trade routes.

This will have a detrimental effect on ports which are dependent on transshipment cargo. Mega container lines are now demanding improved port infrastructure facilities and extracting maximum concessions from competing transshipment ports. The lines are also focusing on the lowest cost factor without giving any guarantee for continued patronage. These developments would make survival of transshipment ports a difficult proposition.

Vallarpadam was commissioned as a container transshipment terminal in February 2011. It has been able to handle only 0.42 million TEUs in 2015-16, far less than its installed capacity of one million TEU. But there been significant improvement in container handling in the first six months of 2016, which recorded a 29 per cent increase in throughput. Vallarpadam has an advantage in the sense that 90 per cent of its throughput is gateway cargo and the transshipment cargo is only 10 per cent. Moreover, it is already accommodating container ships of 14.5m draught and has a projected capacity of 3 million TEUs in the final stage.

The transshipment port of Dubai in UAE (9th largest port) which has handled 15.2 million TEUs has a 50-50 proportion of transshipment and gateway cargo. Another one, Port Klang in Malaysia (12th largest port), which has handled 11.9 million TEUs has 60 per cent gateway cargo and 40 per cent transshipment cargo. Such ports have been able to improve their throughput despite a decline in transshipment volumes. With the passing of GST bill the flow of gateway cargo to Cochin is likely to improve. The current stable industrial relations in the port with the strong support from the State government could make Vallarpadam perform better in the future.

When Vizhinjam becomes operational in 2019 it will have to depend almost entirely on transshipment cargo. The real competitor to Vizhinjam will be Colombo and not Vallarpadam. Vallarpadam has limitations of draught and will not be able to accommodate mega ships of more than 8,000 TEU capacity.

With the availability of 20 m depth of water Vizhinjam will come in for direct competition with Colombo-just 202 nautical miles away. As for proximity from the international shipping route Colombo is only 20 nautical miles while Vizhinjam is about 25 nautical miles away. Colombo has now become the 27th largest container port in the world having handled 5.2 million TEUs — a 6 per cent increase in annual throughput, higher than the 4.5 million TEU throughput of JN Port, Mumbai in 2015.

By 2019, Colombo on the strength of a strategic co-operation agreement on container logistics development with China’s Zhanjiang Port Group will have a deep water container terminal, consolidating its position as a major transshipment hub in South Asia.

Colachel is sandwiched between Vizhinjam and Colombo, 22 nautical miles from Vizhinjam and 180 nautical miles from Colombo. Assuming Colachel becomes operational by 2020, Vizhinjam will have already developed as a transshipment port and Colombo will have made much headway in the transshipment business. Both, Vizhinjam and Colombo, being rivals in transshipment business, will have made conceivably the best port infrastructure facilities, making the entry of a third competitor difficult. Investment in transshipment terminals is a risky business. The strategy of the Centre should be to not build a third container transshipment port at Colachel as that would weaken all the three transshipment ports in India.

These ports will not be able to compete against Colombo. India’s interest would be better served if the Centre utilises its resources to develop Vizhinjam and Vallarpadam where it has made large investments, to be able to function as competitors to Colombo.

The writer is a former Acting Chairman of J N Port, Mumbai, and a former Chairman of Mormugao Port Trust