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There can never be one port too many

Monday, 20 July 2015 | 06:43
Media reports suggest that the Kerala government will enter into an agreement with a special purpose vehicle to be promoted by Adani Ports for building a modern container transshipment port in Vizhinjam near Thiruvananthapuram.

It is for the first time in India that the central and State governments are teaming up with a private investor under a public/private partnership deal. In the ₹7524-crore project, ₹1,635 crore are to be made available in the form of viability gap funding to be shared equally by the Centre and the State government.

The State will also spend ₹1,973 crore on land acquisition, breakwater construction, supply of drinking water, rail and road connectivity and electricity supply as essential infrastructure support. The project is expected to be completed within four years with a capacity to handle ultra large container ships.

A transshipment port is where transfer of cargo takes place from one ship to another. In major transshipment ports, transshipment volumes account for 90 per cent and above of their total container traffic.

A gateway port is one which depends largely on its export/import cargo base originating from or destined to its primary/secondary or territory hinterland. Major gateway ports in the world are Rotterdam in the Netherlands, Antwerp in Belgium, Hamburg in Germany, New York in the US, JN Port in Mumbai, etc.

Gateway ports are generally considered to be more secure and stable as they rely on the cargo support from the industrial, agricultural and commercial activities that take place in the natural hinterland, whereas transshipment ports are generally considered to be insecure and unstable mainly because they rely on the cargo volumes from ports of other countries.

A risky business

Despite the many advantages, Vizhinjam has not been able to generate much interest among port investors because of the risky nature of the transshipment business. In transshipment ports such as Colombo, Tanjung Pelepas (Malaysia), Salalah (Oman), Port Said (Egypt) and Malta, the volume of transshipment cargo represents 90 per cent, 92 per cent, 97 per cent, 90 per cent and 97 per cent, respectively, of their total container traffic with a negligible volume of gateway cargo.

Huge container ships which are called the mother ships have an option to select any port of their choice. They do not show any special loyalty to any port.

This makes the future of transshipment ports extremely vulnerable. World’s largest shipping line, Maersk, shifted its loyalty from Singapore to Tanjung Pelepas about 15 years ago which resulted in the loss of 1.5 million boxes annually to Singapore.

Colombo is now the 29th largest container port having handled 4.9 million boxes in 2014-2015 — 90 per cent of its total container traffic is transshipment cargo and 70 per cent of that transshipment cargo is supplied by the Indian subcontinent. Colombo is under threat in view of the possibilities of Vizhinjam and Vallarpadam emerging as challengers to its position in South Asia.

Ship sizes on the rise

In 2005, the largest container ships were in the range of 8,000-9,000 TEUs (twenty-foot equivalent unit, a measure of cargo capacity) with a draught of about 14.5 m. During the last 10 years, there has been a spectacular increase in the size of container ships-basically to take advantage of the economies of scale.

Larger the ship size, lower will be the unit cost of each container carried. The largest container vessel in service today is “MSC Oscar” of the Mediterranean Shipping Company with a carrying capacity of 19,224 boxes. The trend of building bigger and larger ships is likely to remain strong in view of the 30 per cent operational cost differential compared to older ships built up to 2010. As ships become bigger in size and larger in capacity, they need deeper ports and approach channels.

The important criteria for mother ships to call at hub ports will include, deeper ports with depth up to 16-20 m, close proximity to international shipping routes, high capacity cranes with outreach extending up to 22 rows across the ship’s beam and shorter turnaround times with excellent container handling capability assisted by an efficient IT support team. Vallarpadam has been functioning as an International Container transshipment terminal from February 2011.

When Vizhinjam becomes operational after a period of four years, what would happen to Vallarpadam? The distance between Vallarpadam and Vizhinjam is about 180 nautical miles only. But there are a number of such port pairs with less than 180 nautical miles between them existing around the globe servicing the same catchment area and or transshipment markets.

For example, Port Klang and Port of Tanjung Pelepas in Malaysia co-exist within a distance of about 150 nautical miles, Jebel Ali and Abu Dhabi in the UAE remain within 81 nautical miles. Tacoma and Seattle in the US remain within 33 nautical miles. The distance between Shanghai and Ningbo in China is only 87 nautical miles.

Determining factors

Distance will not be the determining factor for survival of a transshipment port. But Vizhinjam will have the added advantage of deeper berths and approach channel up to 20 metres capable of accommodating even larger ships in future at much lower cost of channel maintenance.

Being a non-major port, it falls outside the jurisdiction of the Tariff Authority and will have the freedom to fix tariff based on competitive market environment. Compared to Vizhinjam, Vallarpadam has limitations with regard to the depth of the channel and its regular maintenance.

At the current level, Vallarpadam can accommodate container ships of 8,000 TEU with 14.5 m draught. But there are many world ports with similar limitations. The port of Antwerp in Belgium situated about 80 km from the North Sea on the Schelt river is the world’s 16th largest container port handling 9 million boxes annually can accommodate container vessels of 14.5 m draught only.

The port of Hamburg in Germany, the 15th largest container port handling 9.7 million boxes annually, is situated about 115 km from the North Sea on the Elbe river can permit only ships up to14.5 m draft. Both these European ports have longer approach channels than that of Cochin (14 km), involving heavy maintenance dredging.

The Belgium and German governments give financial support for maintenance dredging to support their international trade. With the construction of an outer harbour, Cochin Port will be able to permit mega container ships of over 10,000 TEUs in the long run.

Compared to Vizhinjam, Cochin has some advantages. It has an already well developed port infrastructure. It has significant volumes of gateway cargo and has the potential to diversify into a variety of port related maritime activities like ship building, ship repair, bunkering, tourism, etc.

London-based economic consultancy Centre for Economics and Business Research in its annual World Economic League Table indicated that by 2028 India will overtake Japan to become the world’s third largest economy. With active financial and strategic support by the central and State governments, Vallarpadam and Vizhinjam can co-exist as major transshipment ports, challenging the dominance of Colombo.
Source: The Hindu Business Line
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