India’s tariff regulator for Central government-owned major ports has rejected a proposal submitted by DP World to hike rates at its container terminal in the southern port of Chennai by 11%.
The container terminal at Chennai, run by the Dubai-government-owned port operator, currently charges about Rs2,500 from a shipping line for handling a twenty-foot equivalent unit or TEU (the standard size of a container and a common measure of capacity in the container business).
An increase in container handling charges at the terminal would, in normal course, be passed on by the shipping lines to the exporters and importers.
In a notification dated 18 April, the Tariff Authority for Major Ports (TAMP) has ruled that the rates prevailing at the terminal should be maintained for 2007 and 2008. The regulator has said that it could consider tariff adjustment for 2009 at a later stage.
The southern port is being positioned as a hub port on the country’s east coast.
Tariff hikes at cargo handling terminals in major ports have to be approved by TAMP before implementing them.
DP World had first filed a proposal with TAMP last April seeking approval for raising the rates on all tariff items at the terminal by 18% over the existing rates. Subsequently, in October 2006, the terminal operator filed a revised proposal with the regulator in which it scaled down the proposed hike in rates from 18% to 11%.
The tariffs at the Chennai container terminal were last revised in May 2004 for a two-year period and a fresh revision of rates is due since May 2006. DP World handled 8.29 lakh TEUs in 2006 from its Chennai terminal, which has been growing at an average of about one lakh TEUs a year for the last four years. Thus, the terminal will reach its full capacity of 10 lakh TEUs this year.
The commissioning of a new container terminal at Chennai in 2008 by a consortium comprising Singapore-government owned PSA International and local logistics firm SICAL is likely to wean away some of the box traffic from the DP World terminal.
According to DP World, the the new PSA-SICAL terminal next door would capture 30% of the total available traffic volume in 2008 and 35% in 2009. “Since the traffic volume is already available at Chennai and container shipping lines are already calling at the port, it will not take much effort for PSA-SICAL to attract a couple of services to its terminal. This can easily result in loss of volumes of anywhere between 40,000-50,000 TEUs,” DP World had told the regulator.
However, the argument put forth by DP World that it would incur losses due to the anticipated diversion in trafiic to the new terminal did not find favour with the regulator.
“The timing of commissioning of the new terminal and the quantum of possible diversion of traffic cannot be anticipated with any degree of certainity. That being so, this authority finds it not reasonable to give advance effect to the anticipated and uncertain reduction in traffic in 2009 by allowing tariff increase for 2007 and 2008, which are otherwise showing a surplus position,” TAMP said in its order.
“This authority would like to maintain status quo in tariff levels for 2007 and 2008 and, if necessary, to consider any tariff adjustment for 2009 at a later stage,” it said. The regulator said the existing tariff will remain valid for a three-year term till 2009.
“But, if there is any significant traffic diversion from the DP World container terminal on account of the commissioning of the new terminal, the operator may, on or before 30 November 2008, apply for tariff adjustment for 2009,” the order said.