Does South India Need Three Trans-Shipment Ports to Compete With Colombo?

Shipping industry experts fear the proposed Enayam port, proximate to the Vizhinjam port in Trivandrum and the Vallarpadam port in Cochin, may not be sustainable.

The confusion and controversy surrounding a port proposed to be set up at Enayam in Kanyakumari district, Tamil Nadu, refuses to subside. To be developed as a major international port, the Enayam International Container Trans-shipment Terminal, or the Enayam port, has been struggling since the 1990s. This was when the initial technical and economic feasibility studies for developing a port at Colachel (near Enayam) were carried out by the state government “to support industrial growth”.

After having been in limbo for almost 20 years, the Enayam port project was revived two years ago, when the Union cabinet approved the setting up of a new major trans-shipment port at Enayam to make “India a destination on the global east-west trade route” in principle.

The shipping ministry hired a consultant to prepare a fresh feasibility report. It was submitted in August 2015, and said that the “development of a deep Sea Port at Enayam near Colachel to handle larger Container vessels up to 18,000 TEUs [twenty-foot equivalent, a unit of container ship capacity] with 16m draught is technically feasible and financially viable”.

The port is to be built in three phases from 2017 to 2030 at a total cost of Rs 27,570 crore. The 840-acre piece of land for it is to be reclaimed from the sea through dredging. The detailed project report (DPR) of the Enayam port is expected to be finalised by this year’s end, after which the tender process for the construction of breakwaters and dredging is expected to begin.

However, shipping industry experts have been sounding notes of caution. “There are already two trans-shipment ports, Vallarpadam port in Cochin and the under-construction Vizhinjam port in Trivandrum. The proposed Enayam port is the third major trans-shipment port in the region. Having three major ports close to each other looks difficult from a sustenance point of view,” K. Ravichandran, the senior vice-president and sector head of corporate ratings at ICRA Ltd., an independent credit-rating agency, told The Wire.

The Kerala government has already expressed its displeasure at the Enayam port having received the go-ahead because it is barely 36 km away from the Vizhinjam trans-shipment port, which is being built with private funds from the Adani Ports and Special Economic Zone Ltd. (APSEZ). In turn, the Vizhinjam port is about 225 km from the government-owned Vallarpadam port, where the Dubai-based company DP World has been operating India’s first container trans-shipment terminal for the last six years. And according to the Indian Container Market Report 2017, the Vallarpadam trans-shipment port is running at only 49% of its total installed capacity.

There is already an oversupply in the global shipping market and some container companies have already gone bankrupt, Ravichandran said. The present container rates are not remunerative, so shipping liners very carefully control their the costs. “Realistically speaking, three trans-shipment ports close to each other are not needed. Maybe we can manage two – Vallarpadam and Vizhinjam. But these ports will also take a minimum of five to ten years to make any difference in the country’s trans-shipment business,” he explained.

The Enayam port has also been facing stiff opposition from local fishers, who fear the dredging and reclamation will adversely impact their livelihoods. “The coastal stretch where Enayam port is proposed has a fishers population of 1,101 per square kilometre. More than one lakh fishers are dependent on the sea for their livelihood,” said R.S. Lal Mohan, the chairperson of Conservation of Nature Trust, a non-profit based in Nagercoil, and a former scientist at the Indian Council of Agriculture Research. “The consultants tried surveying the area for preparation of DPR but the local people drove them away.”

Need for a trans-shipment port

In 2016, Indian ports handled about 11.3 million TEUs of containers, of which nearly 70% was gateway container cargo and 25% trans-shiped en route to a different destination. Trans-shipment is the act of off-loading a container from a large container ship (generally at a hub port) and loading it onto a second, smaller ship to be carried to the final port of discharge.

Global vessel sizes have significantly increased in the last decade and most main liner vessels have capacities of 10,000 TEUs or more, with the largest vessel reaching a capacity of 18,000 TEUs. Large container ships need deep-draft ports of depth 18-20 metres to berth and move containers.

India’s extant major ports do not have such deep drafts, so a quarter of all containers are trans-shipped through ports in other countries. Colombo (Sri Lanka), Singapore and Klang (Malaysia) handle more than 80% of India’s trans-shipment cargo; of them, Colombo alone handles about 43%.

Trans-shipment adds to the cost of handling cargo because of the extra port-handling charges. It has been estimated that the Indian port industry loses up to Rs 1,500 crore per year in revenue on trans-shipment cargo that is either originating from or destined for India. The additional cost is $80-100, or Rs 5,000-6,500, per TEU, and which wouldn’t be incurred if the container could imported/export directly from an Indian port, according to an August 2015 report.

The report also claims that the Enayam port is an opportunity for India to become a large trans-shipment hub for trade between the US, the EU, Africa and Asia. Today, about 70% of the cargo from Bangladesh and Myanmar gets trans-shipped in Singapore. So a trans-shipment hub in the southern tip of India can save voyage time by five or six days for cargo bound to Africa, the EU or the US’s east coast. This, the report claims, will shave costs down 12-15%.

Based on traffic flow data, the total container cargo traffic at Enayam is expected to be 1.7 million TEUs by 2020. Of this, one million TEU will be gateway cargo and the rest, trans-shipment. The total cargo handled is projected to increase to 12.9 million TEUs by 2040. Coal berths have also been proposed at the Enayam port, with a capacity of 3.3 million tonnes in the second phase (2021-2025), which is to be increased to 6.6 million tonnes in the third (2026-2030).

“Trans-shipment adds to the cost of cargo handling and at a time when the global shipping industry is on a downslide, every penny counts. But merely building a trans-shipment port will not attract foreign liners,” said Neeraj Bansal, the deputy chairperson of the Jawaharlal Nehru Port Trust (JNPT), Mumbai.

Competing with Colombo

To attract major shipping liners and compete with the Colombo port, the Enayam port needs to offer various incentives. The first would be to relax the cabotage law, as the 2015 recommends. Cabotage laws apply to merchant ships in most countries that have a coastline to protect domestic shipping from foreign competition.

A move in this direction was made last March when the Indian government lifted cabotage restrictions for ports that trans-ship at least 50% of the total container capacity handled in a year. However, the impact of the move is not fully understood.

“Cabotage rules act as a hindrance because they don’t allow foreign vessels to transport cargo between domestic ports. But at the same time, the Indian carriers do not have enough [ships] to transport the cargo,” said Ashwani K. Jhingan, the chairperson and managing director of the Mumbai-based Malaxar Shipping and Logistics India Pvt. Ltd. He added that countries like the US and the UK have their own cabotage rules to protect their domestic shipping industries.

Second: the Enayam port must keep port-related logistics costs lower than those at Colombo to make it economically viable for shipping lines to invest in altering their operations. The 2015 report recommends that “a minimum discount of 15% on the port charges of Colombo Port may be given for transshipment traffic for a time period of 5 years to establish minimum scale of traffic in Colachel [Enayam]”. It also recommends waiving the service tax, or offering discounted port charges to offset, extra the service tax at the Enayam.

“In India, ports have been privatised but there is no cargo. Our port handling charges are much higher than the trans-shipment ports at Dubai, Colombo, Singapore, etc.,” Jhingan said. “An Indian port charges almost twice as much trans-shipment charges as at Colombo port.”

Additionally, the customs approval process needs to be relaxed and shortened. For example, on an average, an import at an Indian port requires 10 forms and 22 signatures. At Colombo port, it is seven and 13, respectively.

Finally, the Enayam port’s success will depend on establishing the last mile road and rail connectivity for the gateway traffic. There has been a plan to develop a 11.7-km-long four-lane road connecting the port with NH47 at a cost of Rs 150 crore. The Centre has also been eyeing a 10-km-long railway line between Eraniel and Enayam at Rs 70 crore.

To be or not to be

“The same logic of competing with Colombo port was used while building the Vallarpadam trans-shipment port at Cochin and clearing the Vizhinjam trans-shipment port in Trivandrum. But Vallarpadam is running at less than half its capacity. Should we spend thousands of crores of public money to build a third port in the region?” asked Sudarshan Rodriguez, head of the Social and Ecological Stewardship Programme at the Tata Institute of Social Sciences (TISS).

Rodriguez, who has studied the growth of India’s port industry, said that the Rs 7,525-crore Vizhinjam port has already run into rough weather as the comptroller and auditor general has found that the interests of the state government were not adequately protected while drawing up the concession agreement with Adani Ports and SEZ Private Ltd.

“Large liners and a trans-shipment port definitely provide economy of scale, but will there be enough container traffic for these three trans-shipment ports coming up next to each other when there is a slowdown in the global shipping industry?” asked Rajeev Nayyer, chairperson of the Indian Institute of Marine Engineers, Mumbai. Jhingan fears that these three ports may end up competing with each other for the same cargo instead of competing with the Colombo port.

According to an official of the Shipping Corporation of India (SCI), competing with the Colombo port will not be easy. The Enayam port must have good infrastructure including proper storage yards, gantry cranes (for loading and unloading cargo), a separate section for refrigerated cargo, a repair facility, freshwater supply and fuel (for ships) at an internationally-competitive price if it has to compete with the Colombo port, he said while asking not to be named. “Port clearance also has to be much faster and port charges much lower. At present, a private Indian port [refusing to name it] charges Rs 8,670 for single entry. In contrast, the Colombo port charges $25 [about Rs 1,620] for more than one entry. Can the Enayam port compete with all this?” he questioned.

The Colombo port is already in expansion mode and is developing another deep draft (18 m depth), East Container Terminal.

Dredging costs

“To be a successful, any trans-shipment port in India should have a minimum draft of 20 me, though 24 m draft is preferable for large liners,” said Jhingan. But a deep-draft port means excess dredging, which is a costly affair. “And dredging is not a one-time cost, but a recurring cost, which increases the port handling charges,” said Ravichandran.

Take the case of Vallarpadam Container Terminal, whose annual dredging cost is Rs 110 crore. The Kerala government has sought a three-year dredging subsidy for this port, which is functioning at less than half its installed capacity. In Mumbai, the cost of dredging the harbour has shot up by 154% in the last one decade. The annual dredging cost of another private port in the country is Rs 450 crore. The Mundra port in Gujarat has to be dredged throughout the year to maintain the draft of 17.5 m.

John Jacob Puthur, a retired Indian Navy commander and a charge hydrographer (authorised to certify all types of hydrographic surveys), who has surveyed the entire Indian coastline, claims it is “foolish” of the Indian government to build the Enayam port. “The west coast of India is not suitable for building a trans-shipment hub, which needs a deep draft and an all-weather major port,” Puthur told The Wire. He has authored a book on coastal issues titled The Untold Story of a Coast.

A trans-shipment port is meant for a large liner that carries 20,000-25,000 containers and thus looks like a 10-storey building floating in the sea. Such ships need a safe berthing facility at the port. “In India, we receive four months of south-west monsoon, which is not just rains, but very high-speed winds. None of the three trans-shipment ports – Vallarpadam, Vizhinjam and Enayam – have natural protection from these winds. So imagine a number of 10-storey buildings swaying in the sea during the four months of south-west monsoon,” said Puthur.

According to him, the JNPT and Mundra port are safe because of their location in the creek and the gulf.

Apart from the monsoon winds, the west coast also faces heavy siltation, thereby increasing the dredging cost. “The Vallarpadam port is a disaster as it’s located on a marshy patch meant to be silted every year. Its natural depth of two to three m has been dredged to 14 m, which is not sustainable,” alleged Puthur. He claimed that the 4.5-m-high breakwaters of Vizhinjam port were not enough to protect 20-m-high loaded ships during the monsoon months.

Environmental costs

Apart from wasting public money, poorly-planned ports also have a high environmental cost, which the port authorities never take into account, said Rodriguez. Construction of structures such as ports, groyne and seawall blocks the movement of beach sands, leading to coastal erosion.

Pondicherry harbour is a classic example. “Pondicherry had a natural beach, which disappeared after the construction of the harbour,” said Probir Banerjee, president of PondyCAN (Pondy Citizens’ Action Network), a non-profit researching on beach erosion. According to him, beaches are not static; they are rivers of sand and the sand continuously moves in the north and south direction.

For instance, at the Pondicherry beach, nine months of the year, 0.6 million cubic metre of sand moves northwards. And in the remaining three months of the year, 0.1 million cubic metre sand moves southwards. “Because of the construction of the breakwaters, the sand cannot move northwards. Thus, almost 12 km coastline in the north of Pondicherry has disappeared. Salinity ingress is another major problem,” said Banerjee.

It is worth noting that 45% of India’s coastline is facing erosion. An official document (June 2017) of the Enayam port notes that the part of coastal stretch where the port is proposed “is already experiencing erosion”. But it assures people that “proper shore protection measures will be adopted to protect the shore line from erosion”.

The Wire had emailed a set of questions on the proposed project to senior officials of the Kanyakumari Enayam Port Ltd. The article will be updated as and when a response becomes available.

Source: The Wire