Why the trans-shipment terminal at Vallarpadam is a non-starter

The consequences of the belated decision to relax cabotage by the government continue to haunt ICTT to this day

Handling 17,000 twenty-foot equivalent units, or TEUs, aggregated from various ports in India out of the 365,000 TEUs loaded in the year ended March 2015 is hardly the kind of performance that India’s first international container trans-shipment terminal, or ICTT, would be proud of. A TEU is the standard size of a container and a common measure of capacity in the container business.

But that’s what the ICTT run by Dubai’s DP World Ltd at Vallarpadam in Cochin Port managed to achieve. A container trans-shipment terminal such as the one developed at Vallarpadam acts like a hub into which smaller feeder vessels bring container cargo, which then gets loaded onto larger ships. Larger vessels bring about economies of scale and lower the cost of operations for shipping lines, which translates into lower freight rates for exporters and importers.

The paltry trans-shipment volumes (the facility has a capacity to load 1 million TEUs a year) could become a potential deal-breaker at a time when DP World is seeking to get a three-year relaxation granted by the government from a local shipping law extended for a longer period. The relaxation was at the centre of a row between the government and local fleet owners who wanted the so-called cabotage restriction to continue so that shipping cargo between local routes was reserved for Indian-registered ships.

The easing of cabotage law to allow foreign container carriers to ply on local routes to and from ICTT for aggregation of containers to attract more mainline vessel calls was permitted in September 2012 for a three-year period. The relaxation ended on 19 September. India’s shipping ministry has flagged off an exercise to review the decision which could decide whether the relaxation is to continue or not.

DP World Ltd, the world’s fourth biggest container port operator majority owned by the Dubai government, won the 30-year contract to build and operate the ICTT in a public auction in 2004. DP World initially took over the existing container terminal run by the Cochin Port Trust until it constructed the ICTT and shifted operations there in February 2011. The ICTT has been loading an average volume of 300,000 TEUs a year of which the maximum trans-shipment volume handled was 27,000 TEUs in 2013-14.

So, what is ailing the ICTT and stopping it from realizing its full potential?

It’s difficult to single out anyone in particular for the state of affairs at ICTT. DP World, the operator of the ICTT, the Indian government which had invested money in deepening the port channel and constructing a rail link to the ICTT, the Cochin Port Trust, the customs department and the special economic zone (SEZ) authority—all had a role to play in this.

The Cochin Port Trust continues to spend money on maintaining the channel depth every year but this spending is lower than what it gets as revenue share from the DP World facility.

The consequences of the belated decision to relax cabotage by the government continue to haunt ICTT to this day. Reliable and adequate feeder capacity is required for trans-shipment to take place successfully. An inadequate Indian container fleet was unable to ensure efficient feedering for the trans-shipment terminal.

Moreover, with congestion at JN port and Chennai port confronting India’s export-import trade in 2011, top container shipping lines were at the door of Vallarpadam ICTT seeking a relaxation from the cabotage law to start plying on local routes and aggregate containers for trans-shipment at Vallarpadam. But the government took its own time and the delay only helped Colombo port to raise capacity.

Vallarpadam was designed to cut India’s dependence on neighbouring hub ports such as Colombo in Sri Lanka, Singapore, Salalah in Oman, Jebel Ali in Dubai, Tanjung Pelepas and Port Klang in Malaysia to send and receive container cargo, thus saving time and cost for exporters and importers. Currently, about 2.2 million TEUs are trans-shipped from India to ports such as Colombo, Singapore, Klang and Jebel Ali. Colombo and Singapore account for 66% of containers trans-shipped from India. India’s plan was to trans-ship Indian containers from within the country.

When the cabotage relaxation finally came about, the customs and SEZ authorities were at each other’s throat over jurisdictional issues that affected the clearance of trans-shipment containers.

The ICTT is located within a SEZ to ensure fiscal concessions and procedural ease at par with competing international terminals. Firming up mutually agreed procedures between customs and SEZ authorities took more time.

Shipping lines never forgot the agony they went through, being caught between the customs and SEZ.

The turf battle between customs and SEZ went to such an extent that in one particular incident French container line CMA CGM SA had to offload 60 containers loaded on to one of its mainline foreign vessel and had to ship it on an Indian vessel.

Still, the trans-shipment procedures finalized by India for the Vallarpadam facility has not been accepted by the customs department at other Indian ports with the result that India’s exporters and importers continue to prefer Colombo over Vallarpadam.

Colombo is always way ahead of Vallarpadam in terms of capacity, pricing and productivity. ICTT does not have flexibility in rates unlike Colombo. To give competitive rates in vessel-related charges to attract big container ships, the Cochin Port Trust and the government took their own time by when Colombo further established its credentials as a trans-shipment hub.

Similarly, whenever Cochin port dropped its vessel-related charges to make it competitive with Colombo, the latter undercut Cochin by reducing its rates further. In such a situation, attracting mainline vessels of foreign shipping lines becomes all the more difficult.

Cabotage relaxation in isolation is just not enough. For competing with Colombo and reducing India’s dependence on neighbouring hub ports, a collective and concerted effort is required.

P. Manoj looks at trends in the shipping industry.