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The need for deep water terminals was discussed in many platforms this year due to the urgency of increasing port capacity in Colombo to cater to the surge of volume. In 2017, the Colombo Port reached a historic juncture with over 6.2 million container traffic transactions and the Sri Lanka Ports Authority expects to maintain a double digit growth for the year 2018. The 1st half of 2018 records a 15% growth of container throughput when compared with the 1st half of 2017. If this growth momentum continues, we can assume that all Terminals in Colombo will reach full capacity, and therefore adding capacity at a brisk pace is the most important factor for Sri Lanka to retain its position as the best connectivity port in South Asia.
The only deep water terminal in Sri Lanka is Colombo International Container Terminal (CICT), with a depth of 18m, and the existing facilities are reaching saturation for 6th generation container mega carriers. Ports and Shipping Minister Mahinda Samarasinghe on many occasions has clarified the Government’s interest in expediting the equipage and operation of the East Container Terminal (ECT). The various initiatives taken by Sri Lanka Ports Authority are commendable, and have resulted in the Colombo port leading in many indices and creating history. We need to continue these initiatives and urgently look at adding capacity on a priority basis.
Mega ships require mega facilities
Container ships became bigger in size and volume due to favourable industry speculation, leading to an increase of supply. To benefit from economies of scale, increased fuel efficiency and reduced carbon footprint, shipping lines invested in modern ships with larger capacities.
The Panama Canal expansion has also resulted in bigger ships. Several ship-building companies across the world are already following the new parameters for container ships, to match the dimensions of New Panamax. They are also receiving large orders for the New Panamax vessels from shipping companies. These vessels require sufficient berth depth to call at a terminal.
Opportunities as a regional transshipment hub
Increasing regional transshipment volume is also demanding more capacity. India and Bangladesh are the Port of Colombo’s primary transshipment markets. The key drivers are the size of the import/export volumes at these ports, and proximity to the Port of Colombo. The import/export volume of India stands at 12.31 million TEUs and is expected to grow at a compound annual growth rate (CAGR) of 7.9% (2015 to 2041). 23% of India’s transshipment volume is handled via the Port of Colombo. Similarly, 33% of Bangladesh’s transshipment volume is handled via the Port of Colombo, and the import/export volume is expected to grow at a CAGR of 9.5%. Therefore it is of utmost importance that the Port of Colombo is able to handle the surge of transshipment cargo in the coming years.
Rapid growth in Indian port infrastructure
India is rapidly investing in their port sector, and particularly a Deep Water Terminal in Vizhinjam, which will affect transshipment volumes from India. In August 2015, Adani Group and the United Democratic Front (UDF) government signed the concession agreement, and construction work started in December 2015. Ports Minister Ramachandran Kadannapally informed that commercial operations will begin at the port in December 2019; however, a shortage of granite for the breakwater construction and the damage to the dredger during the Ockhi cyclone has slowed down the progress.
The state government has not relented so far on its stand that the deadline for the Vizhinjam project cannot be extended. Following the Ockhi cyclone, the Adani Group had informed the government that the Phase I deadline of December 4, 2019 would be overshot. An independent engineer had looked into the matter, and on its recommendations, the government had declined to entertain the Adani Group request that the deadline should be extended. As work is expected to go full-swing from this month onwards, the deadline would remain the same. Phase I consists of three major projects: construction of the 3.1 km-long breakwater, dredging and reclamation work and the construction of 800 meters of berth.
The Vizhinjam International Transshipment Deepwater Multipurpose Seaport by the Government of Kerala is aimed and designed to cater to container transshipment, besides multi-purpose and break bulk cargo. The port is being currently developed under a landlord model, with the public-private partnership component on design, build, finance, operate and transfer (DBFOT) basis. Transhipment handling cost of some of the East Coast ports are less than Colombo. For example, Port of Kishnapatnam is offering promotional transshipment rates, which is about 50% of the handling cost of Colombo. Indian ports are now working to match Port of Colombo navigation costs (with discounts up to 85% for main lines sailing direct to Europe / USA East Coast) to attract more calls. The private ports that are coming up, like Krishnapatnam, Kattupalli , Ennore & Vizhinjam, are not part of the Tariff Authority for Major Ports (TAMP), which is the Indian Government body which fixes tariff. These ports have the flexibility to fix their own tariffs resulting in even more competitive rates.
Relaxation of Cabotage rule in India is another development that we should closely monitor. Previously, the Cabotage law did not allow a foreign flag ship to carry export-import cargo between Indian ports which has been transported on the same shipping line. The law did not even allow for empty containers to be transhipped between Indian ports on a foreign flagged shipping line. This affects the ‘Just in Time Logistics concept’ to an extent, as it increases the cost of the end product and burdens the associated infrastructure. Removing this restriction allows foreign flag vessels to tranship via Indian ports, which will affect transshipment volumes of Colombo.
Way forward
We all understand the need of adding capacity by operationalising the East Container Terminal. However, we are late. If the terminal handling equipment is ordered today, it will take at least a further one and a half years to operationalise ECT. Obtaining gantry cranes on lease may take six months to a year, and depend on whether the hirer would be willing to hire for a six-month period. The entire proposal does not sound practical, especially with the current procurement delays and political uncertainty. It is likely that Vizhinjam will be operational before ECT, and we risk a few large shipping lines shifting to Vizhinjam.
So what can we do in the short run? Initiatives to improve productivity, such as improving the efficiency of navigation movements, should be taken immediately. This initiative can create two additional berths per week at one terminal, which amounts to 6 berths in all 3 terminals. Improving internal trucking between terminals can also help to improve efficiency in the Port of Colombo, and thereby improve the turnaround time of vessels.
Close to 50% of the Port of Colombo’s throughput is handled by 3 mega lines (MSC, Maersk & CMA) and they are already present in Indian ports. If ECT is further delayed, these lines will influence feeder operators to change the pattern of feeder services to suit main line requirements. Therefore the Government should immediately take steps to operationalise the deep water terminal. Development and innovative changes in terms of infrastructure, strategic changes in thinking towards a more global centred maritime operation, and radical changes in policies are necessary to revolutionise the island’s operations and standards in maritime.
CASA, the voice of the shipping industry, appeals that these initiatives are implemented immediately before we lose the competitive advantage of being the strongest transshipment hub in the region. To attract services which are currently not calling Colombo, and to retain the share in a growing regional transshipment market, we must have more capacity. If not, shipping lines and exporters would look for alternative ports to direct their transshipment volumes.
