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India can boost container cargo traffic

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India is losing revenue on nearly a quarter of its own container cargo every year, leave alone capitalising on cargo bound for other countries. Much of this loss is of ports on the eastern coast. The loss is primarily because India does not have a transshipment hub of its own around the southern tip. Transshipment, as the word suggests, is movement of a container or cargo from one vessel (feeder vessel) to another (mainline vessel) while in transit to its final destination.

In 2019, Indian ports handled around 16 million twenty-foot equivalent units (TEUs) of container traffic. About 75 per cent of these were gateway containers (which operate directly from the port of origin to the port of destination), while 25 per cent were transshipment containers (4 million TEUs).

About 3.5 million TEUs were transshipped at ports outside India. The key international ports handling Indian transshipped containers are Colombo, Singapore and Klang in Malaysia. The lion’s share of this lies with the Colombo port, which handled 2-2.5 million TEUs of Indian containers.

This loss is due to unavailability of mainline vessel calling at these ports.

The west coast of India is better located, where most of the container ports are gateway ports that send cargo containers directly to destinations. Only 8 per cent of the total container traffic from the major ports on the west coast is transshipped.

The east coast, however, loses transshipped container cargo to international ports. During the past three years, data show that as much as 62-67 per cent of total container traffic from major ports on the east coast was transshipped. Colombo benefits majorly from India’s loss, taking 27-31 per cent of total east-coast ports traffic and accounting for 43-46 per cent of the total transshipment traffic. Most of the east coast ports, such as Kolkata, Haldia, Vizag and VO Chidambaranar, are losing mainline/direct traffic to Colombo.

The revenue loss is enormous. Assuming a per-container handling rate of ₹6,000, India is losing ₹1,200 crore per year of potential forex benefit to Sri Lanka alone, for handling transshipment containers originating/destined for India. Additionally, there would be a loss of income from vessel-related charges and employing direct and indirect manpower.

A good transshipment port in India could not just serve its own originating/destined traffic, but also the traffic on the circuit where India falls — that is, US/Europe to/from the Indian subcontinent, US/Europe to/from Far East, and Africa to/from Far East. The transshipment cost also leads to higher logistics cost to the shipper, where the additional freight and handling cost get loaded to the overall cost.

Case for transshipment hub

Going by the key parameters of draft availability and deviation from the main international Suez-Far East maritime trade route, the existing Indian ports that could be weighed for development into a transshipment hub are:

VO Chidambaranar — draft potential 18 metre, maritime route deviation 6-8 hours

Cochin — draft potential 16 metre, maritime route deviation 4-6 hours

Vizhinjam — draft potential 20 metre, maritime route deviation 0.5-1 hour

Container freight is a consolidated tariff charged by the mainline vessel operators. Hence, the cost per container needs to be cheaper to the mainline vessel operator for recognising a port location as a transshipment port. If the transshipment facility is available at Tuticorin and Vizhinjam, it is equally beneficial to halt at these location as at Colombo.

Docking at Ennore will increase the one-day chartering cost, which gets loaded for the Ennore-based containers. We estimate that this would result in a ₹3,000-3,500 per TEU (4-5 per cent of the overall shipping cost) increase in container tariff charged to the shipper.

Hence, the Vizhinjam and VO Chidambaranar ports have the potential for developing as transshipment hub ports.

Key steps involved

Attracting an anchor shipping line would be one of the most important aspects for developing these ports as transshipment hub ports. The Vizhinjam and VO Chidambaranar ports meet the shipping lines’ key selection parameters: proximity to the mainline maritime route and deep-draft availability.

The other important parameters are:

Competitive/discounted tariff by the port terminal operator — the Major Port Authorities Act, 2021, and new model concession agreement give private operators at the major ports flexibility to charge market-driven tariffs

Lower vessel-related tariffs

Availability of adequate parcel size — this could be easily met, as the hinterland available to these two ports stretch to the entire east coast of India, along with parts of the west coast

Governance framework for productive port operations (IT-enabled systems for Customs and taxation)

Mechanisation and automation level at berths, easy and efficient handling, storage, faster turnaround time, and faster evacuation through excellent road/rail connectivity

Ancillary services, such as bunkering, crew change, international airport and hotels

In sum, setting up a transshipment hub in line with the national objective of PM Gati Shakti-National Master Plan has become an urgent imperative.

The benefits are many and for all to see. First up, it will reduce the logistics for shippers, as the origin or destination lap of the container would either be on road/rail (for immediate hinterland of transshipment port, 12-15 per cent savings on total freight cost) or on domestic/coastal route (4-5 per cent savings on the total freight cost).

Among other benefits, it will boost higher container coastal traffic. Besides, it will ensure greater integration with world trade, leading to more lines calling the country and also opening direct access to the developed markets. And finally, there would be a significant increase in efficiency and throughput, leading to keener competition from other ports in the country.

The writers are Director and Associate Director, respectively, at CRISIL Risk and Infrastructure Solutions Ltd

Published on May 12, 2022

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