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Sri Lankan crisis fires up India’s container transhipment port ambitions

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Herons Logistics

MUMBAI : The recent economic crisis in Sri Lanka has presented India an opportunity to position itself as an alternative to Colombo port in container transhipment, says experts.

“This is a golden opportunity for India,” said Jagannarayan Padmanabhan, Director and Practice Leader, Transport, Logistics and Mobility, Crisil Infrastructure Advisory. “How you approach it and package it will be a decisive factor. It could be seen as opportunistic, but that’s what it is. You have to be opportunistic, that’s when things will move,” he said.

India has been trying for many years to cut its dependence on Colombo port to send and receive cargo shipped in steel containers, but without much success.

India’s exporters and importers (EXIM) route some 3 million twenty-foot equivalent units (TEU’s) of containers every year through Colombo port where mainline ship operators have pitched a transhipment hub taking advantage of the deep draft and competitive rates for ship calls offered by the island nation.

Transhipment operations, according to shipping industry executives, don’t shift easily. “But, once they shift, it is forever,” said an industry executive.

For a long time, India has been lobbying mainline ship operators to make that shift happen to cut extra time and costs for its exporters and importers in routing the containers via Colombo port. The lack of deep draft ports and pricing have dampened India’s efforts despite building a container transhipment terminal at- Vallarpadam in Cochin Port with huge investment on a public-private-partnership basis some ten years ago.

The occasional congestion in Colombo port has fleetingly pushed India’s EXIM trade to lobby shipping lines for transhipping Indian origin-destination containers within India. The momentum for a shift, though, died down as the congestion eased in Colombo.

But, this time, India’s policy managers and EXIM trade have a solid argument to pitch the country as an alternative to Colombo to the carriers.

From an Indian perspective, the 3 million TEU’s becomes an immediate catchment that can be taken up to bolster the case for transhipment. Besides, from a growth perspective, it can be pitched even more aggressively by the government, says Crisil’s Jagan.

But the key question is where should the transhipment- be done?

While seeking to shift container transhipment from Colombo to India, it is critical to look at the pricing under which it is serviced. “Colombo port has been in the business of transshipment for many years and the price it charges for the boxes is far more competitive than India,” Jagan observed.

“If we are able to get the pricing parity with Colombo, that would be important,” Jagan pointed out. “Transhipment is always about volumes; margins are very thin in this business, so efficiency becomes important,” he noted.

In terms of location, India should pick one or two ports without adopting a “diffused” approach.

“What we should not be doing is to have a diffused approach by looking at multiple ports for transhipment. We should just select one place and then put all our energy there to create a transhipment hub,” says Jagan.

From an interim perspective, till a deep-draft transhipment port is constructed at Vizhinjam in Kerala, Chennai port could be a decent bet to position as an alternative. “It has good draft and connectivity with established global players operating container terminals. It could even be Kattupalli or Kamarajar ports located near Chennai. Any of these three can match up, the hinterland is the same and cargo can go anywhere between these three ports,” Jagan said.

Besides, with state-owned ports such as Chennai transforming into an “authority” from a previously rigid “trust” set-up, under a new law passed by Parliament, public ports have greater operational freedom including the ability to play around with the rates and take quick decisions.

“I strongly believe that a doubt has been cast due to the crisis in Sri Lanka and this is the best thing to go and talk about to the carriers and nudge them to shift. We should back a maximum of two ports as alternatives to Colombo and tell them how and when we are going to do it and push that agenda quickly,” says Jagan.

Promoting a transhipment hub within India would be a “good enough business case”, shipping industry executives said, pointing to the growing volumes at Indian ports that can be handled within the country itself without being routed through another hub. This is more so when there is no value addition happening to the cargo in Colombo where the only thing that happens is the onward movement of containers to final destinations.

With the economic crisis casting a doubt over “instability” in the island nation, a transhipment hub in India could become a “de-risking” tool to mainline ship operators, enabling them to move to a safe and stabilised environment rather than live with the risk.

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