India is making efforts to set up one more container trans-shipment terminal, closer to the east-west trade lane, with the cabinet approving a facility at Enayam in Tamil Nadu. The success of the latest trans-shipment adventure will squarely rest on getting one of the global top three container shipping lines to become an anchor investor in what is essentially a liner-driven business.
For that to happen, India needs to revisit its qualification criteria for selecting potential terminal developers at its major ports—those owned by the central government.
The evaluation criteria for potential bidders set by the government in 2009 ignores the role played by shipping lines in contributing to the performance of a container terminal let alone a container trans-shipment terminal.
In computing the experience score of an applicant to consider it eligible for qualification, experience in core sectors such as power, telecom, ports, airports, railways, metro rail, industrial parks/estates, logistic parks, pipelines, irrigation, water supply, sewerage and real estate development are factored in. Experience in running a shipping line, which brings business to these trans-shipment hubs, is not included.
This explains why none of the global container shipping lines are part of container terminals operating at major ports. Since they don’t bring any value to the table for qualification purposes, port developers are loath to signing them up as partners.
On their own, they don’t qualify because shipping is not part of the core sectors drawn up for working out experience scores.
Geneva-based Mediterranean Shipping Co. SA (MSC), the world’s second biggest container shipping line, did apply in partnership with Adani Ports and Special Economic Zone Ltd (APSEZ) in an auction for developing a container terminal project at Jawaharlal Nehru Port a couple of years ago. The APSEZ-MSC team was qualified to bid, but the experience score for that joint venture was counted on the basis of APSEZ’s credentials.
This is not the situation at non-major ports or ports owned by the states but given to private firms for development and operations. For instance, APSEZ, which runs India’s biggest private port at Mundra in Gujarat, has two of the world’s top three container shipping companies—MSC and CMA-CGM SA—as partners in two separate terminals.
Unlike gateway terminals, trans-shipment facilities are dependent on big container lines, a fact that has been acknowledged globally.
Trans-shipment hubs such as the ones located at Tanjung Pelepas in Malaysia and Colombo in Sri Lanka have shown that having a shipping line as anchor investor in the port (Maersk Line in the case of both Tanjung Pelepas and Colombo) is eventually the determinant of success. Making the liner invest in the port makes it a stakeholder in the port’s success and, thus, incentivizes it to move existing traffic and establish a minimum scale of operation. The liners are also keen to operate from a port where they have investments since this will enable them to influence port planning decisions and port operations, take long-term bets while planning routes/vessel commissioning decisions and help improve overall cost economics and flexibility on pricing.
About 25%, or some 2.8 million twenty foot equivalent units, or TEUs, the standard size of a cargo container, originating from or destined for India, is trans-shipped every year at overseas hubs, en-route to their final destination.
Colombo, Singapore and Port Klang (Malysia) handle more than 80% of this cargo. Of this, Colombo alone handles around 1.2 million TEUs, which is a significant loss of revenue for India’s exporters, importers and ports; it builds inefficiencies in logistics and creates risk to the country’s competitiveness in export trade.
The shipping ministry says there is a “strong economic case” for building a new trans-shipment hub in and around the same region to attract Indian and regional trans-shipment traffic from the current hubs. But is it justified?
Enayam will be the third container trans-shipment terminal to be located a few kms apart from each other on India’s southern tip. Of this, Vallarpadam in Cochin port has been operational since 2011 without much success. None of the global top three container lines are an anchor investor in the facility, which is also facing multiple hurdles in its efforts to become a major hub as planned.
Vizhinjam, also in Kerala, is being developed by APSEZ. There are indications one of the top three global container lines could make Vizhinjam its trans-shipment hub as the qualification rules applicable to major ports will not be relevant here as it is a port outside the control of the centre.
APSEZ’s strong ties with two of the top three container lines at its Mundra port, where one of the container terminals—a joint venture between APSEZ and MSC—is undertaking trans-shipment operations, would help make a similar partnership a reality at Vizhinjam. There are several more commercial advantages, including pricing flexibilities that flow from building a trans-shipment hub outside Indian government ownership. Vizhinjam has also secured the key environment clearance, which Enayam is yet to receive.
“Enayam’s success, to a great extent, will depend on its ability to convince a major shipping liner to become an anchor client and re-route its traffic from the competing ports,” consultants TYPSA and Boston Consulting Group wrote in their techno-economic feasibility report on the Enayam project.
Container shipping lines take a long-term view and consider several factors such as minimum deviation from the main trade route, and lower port charges when deciding their preferred trans-shipment port, given the costs of reconfiguring their existing route networks, according to TYPSA and BCG.
But, given that Enayam is being developed as a major port like Vallarpadam in Cochin and the consequent applicability of shipping-unfriendly evaluation criteria, it calls for a change in rules.
With India’s shipping ministry set to revise a so-called model concession agreement (MCA) for public-private-partnership (PPP) projects at major ports, the time is apt for reviewing the qualification rules. MCA sets the terms and conditions of a port contract.
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