Why Maersk is shutting Chennai-US direct service

Why Maersk is shutting Chennai-US direct service

Maersk Line, the world’s biggest container shipping company, has decided to shut its weekly direct service from the Chennai port to North America from 5 February. This was the only container shipping service directly connecting a port on India’s eastern coast to the US.

Customers in southern India shipping goods in steel containers to the world’s largest economy will have to route them via Colombo, Sri Lanka, from February. This entails extra transit days and costs, eroding India’s competitiveness in the global market.

The exorbitant marine charges collected by both government-owned and private ports are acting as a deterrent to growth in trade out of India.

An average container ship calling at Indian ports can carry some 6,400 standard containers. The depth at Indian ports cannot accommodate ships bigger than that. Maersk, which was operating the Chennai-North America service with ships capable of carrying 4,300-5,060 standard containers, had to pay marine charges of about $75,035 (Rs35 lakh) for each vessel calling at the Chennai port. Thus, in a year, Maersk had to pay as much as $3.6 million just to make a call at Chennai.

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Facing a loss of some $2 billion this year because of the slump in demand globally for moving containers and the falling freight rates, this was a huge cost for Maersk to swallow.

This is the real reason why Maersk had to drop the Chennai direct service, though the south India market has shown more growth potential over the past five-six years with many global auto companies setting up plants in the region. In terms of container traffic over the past six years, Chennai port has grown at 19-20% year-on-year.

Steep marine charges are a big contributor to the high shipping rates from India because shipowners have to recover these costs from their customers. The ultimate sufferer is the Indian exporter and importer.

The marine charge is $61,455 per vessel call at the Tuticorin port; $61,623 at Visakhapatnam; $32,532 at Jawaharlal Nehru Port; $55,422 at Mundra; and $46,544 at Pipavav.

In comparison, marine charges at some of the big ports in the region are significantly lower. For instance, it is $11,580 at Colombo; $7,300 at Jebel Ali in the United Arab Emirates, $7,750 at Salalah in Oman; $4,100 at Port Klang; and $9,725 at Tanjung Pelepas, the last two in Malaysia.

The ministry of shipping, which controls a dozen big ports in India, and the management of these ports need to review this cost burden if India’s ports have to achieve the ambitious target of handling 50 million standard containers by 2020 from about 8 million now. Unless there is a shift in the mindset soon, India will lose to other competing nations such as Vietnam and Malaysia in the race for grabbing a major chunk of US and European sourcing requirements from Asian countries.

The government could consider using the royalty or revenue share paid by private operators to improve the infrastructure at the ports, thereby lowering the overall marine charges.

If marine charges and a lack of adequate depth are not addressed expeditiously, India’s exporters and importers will have to rely on trans-shipment of containers to send and receive goods.

In trans-shipment, cargo containers are first moved in smaller vessels from an Indian port to one of the five neighbouring ports—Colombo, Singapore, Port Klang, Dubai or Salalah—from where they are reloaded on to bigger, mainline vessels and shipped to their final destinations.

India spends at least Rs1,000 crore a year on trans-shipment alone, as big ships are not able to call at the country’s ports due to depth restrictions.

While building a world-class port infrastructure in itself is a challenge in India, a bigger challenge to a more aggressive growth for trade is the high cost for shipping lines doing business in India.

P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday. Respond to this column at allaboveboard@livemint.com