Enayam in India to compete with Port of Colombo

Enayam in India to compete with Port of Colombo

Enayam, or Colachel, is New Delhi’s big bet on transhipment traffic. Currently, about 30% of Indian containerised cargo is transhipped via international hub ports. Though authorities cited many strategic advantages for Enayam, including a 20 metre draft, the site’s close proximity to the busy Suez route is viewed as a key factor in the government’s decision to build a transhipment hub there with investments worth more than Rs. 27,500 crore over three phases. 

Colombo, Singapore and Port Klang account for approximately 75% of transhipped cargo from India. To reverse this trend, India needs to develop a container port located near the global East-West shipping route with adequate draft, large scale of operations and access to a large hinterland, a government report said. The government is looking to establish a special purpose company between V.O. Chidambaranar Port Trust, orTuticorin, with a 40% stake, Kamarajar Port Trust, or Ennore, at 40% and Chennai Port Trust, at 20%, for the Enayam port development. 

Provisional plans for the first phase, which is targeted for completion by 2018, call for the construction of two berths with a 400 metre quay each, providing an annual capacity of 1.6 million TEUs. Enayam will be a dedicated container handling facility with volumes projected to reach 1.7 million TEUs by 2020, 4.9 million TEUs by 2025 and 6.7 million TEUs by 2030, according to feasibility reports. Port statistics obtained by JOC.com from the Shipping Ministry show Colombo handled roughly 1.2 million TEUs of Indian transhipment cargo in fiscal year 2014 to 2015, which ended in March 2015, up from 652,000 TEUs the prior year. 

Colombo had the largest share of India’s foreign transhipment volume during that year, accounting for 48% followed by Singapore at 22% and Port Klang at 10% according to the collected data.

The New Panama Canal to affect East West trade

Nine years and $ 5.4 billion in the making, the Panama Canal’s new, larger locks have opened amid questions about the impact they’ll have on an uncertain global trade and container shipping environment. The biggest questions involve trade between Asia and the US, East and Gulf coasts, where ports have invested tens of billions of dollars in dredging and other investments aimed at cutting into the West Coast’s dominant Trans-Pacific market share. East and Gulf ports have been nibbling away at the West Coast’s market share and hope the Panama Canal’s added capacity will accelerate their momentum. 

During the nine months ending in March 2016, their market share inched up to 33.9%, form 29.1% two years earlier, according to PIERS, a sister production of JOC.com. The new locks measure 1,200 feet by 160 feet and will accommodate container ships that carry up to about 13,000 TEUs, depending on the design and that draw up to 50 feet of water. That’s nearly triple the 4,500 to 5,000 TEU capacity of current Panamax vessels using the century-old, 1,000 by 110 foot locks, which have a maximum draft of 39.5 feet.

2M Alliance partners Maersk Line and Mediterranean Shipping Co. plan to shift one of their Asia to US, East Coast services that use the Suez Canal to the newly expanded Panama Canal, a Maersk Executive said. We anticipate that one of the services that go through the Suez today will be changed to go through Panama in the future, at least in one direction, Anders Boenaes, Maersk’s Head of Network, told JOC.com. Yet to be determined, Boenaes said, are the timing of the change and which Suez service will be shifted to Panama. 

The carriers’ Suez services to the East Coast are the Maersk TP-11/MSC America, to New York-New Jersey and US South Atlantic ports and the Maersk TP-12/MSC Empire, which calls on US North Atlantic ports. Maersk and MSC also operate two Panama services between Asia and East and Gulf Coast ports. Also undetermined is whether the return trip will be via Suez, Panama or around the Cape of Good Hope at the Southern tip of Africa. Currently, one of the 2M carriers’ Asia-East Coast services returns via the Suez, but the other sometimes goes around Africa in order to save on canal tolls. 

Mega ships, slow terminal automation

The surging number of mega ships, increasingly powerful carrier alliances and sluggish global trade growth are making financially pressured container terminals think twice about making costly investments in automation, industry analysts said. It’s a very hard time to make those investments when the port industry is facing slow growth, higher operating costs and declining margins, according to Neil Davidson, Senior Analyst, Ports and Terminals Drewry Maritime Research.

The situation has been aggravated by the cargo peaks and troughs and declining service frequency caused by the deployment of mega ships, which has become the biggest challenge for the port industry, Davidson told the Port Technology Automation conference in London. Terminals can no longer base their investments on volume flows because moves by carrier alliances to re-jig their port calls are creating volatility that is undermining the economic rationale of investing in automation. 

The 2M Alliance’s recent decision to cut the number of port calls on its Asia-North Europe network to improve transit times will rob Le Havre of its sole call by a ship with a capacity of 19,000 twenty foot equivalent units, while Rotterdam said the new schedule is excellent news that will lead to a substantial increase in its container volume. This network volatility makes it even harder for terminal operators to decide whether or not to invest in automation, according to Davidson. 

Ports that get just one mega ship call per week require labour pool flexibility to efficiently handle the cargo surge mega ships cause, while those that have calls on a daily basis have a better case for automation, which relies on regular cargo flows, Olaf Merk, of the International Transport Forum at the Paris based Organisation for Economic Co-operation and Development, told the conference. Very large ships are making less frequent calls, so you can’t get data of the terminal’s average performance to base your assumptions of automation on, said Kris Kosmala, General Manager for Asia-Pacific at Quintiq a Dutch supply chain software company. 

Is this a good time to automate? Probably not. We’ve got an oversupply of terminal capacity, the OECD’s Merk said. Port capacity is running ahead of demand, which means terminal operators must figure out how to make better use of their current facilities rather than invest in new capacity. Automation can play a role by boosting productivity and utilisation.

Freight rates may replace market share

Although there is still some way to go before container freight rates reach stable, sustainable levels, the rapid erosion in rates that occurred during the first half of this year could be set to end. By looking at the published results of carriers during the first quarter, Drewry ascertained that an intense rate war between lines pushed rates down, as each sought to maintain or grow market share. Drewry said Maersk Line was at the forefront of the battle, with a 26% fall in revenue, which helped lead to a 7% increase in volumes. 

These volumes had to come from someone, however, and other lines lost out. Drewry pointed to APL, Hanjin and K Line as lines that had lost volumes despite lowering rates, hence taking a double hit on revenues. The predatory commercial strategies of the first quarter meant the rate decreases were more severe than they might otherwise have been, Drewry said. The basic supply and demand fundamentals were actually better for carriers in the first quarter than in both the previous three months and the same period in 2015, as headhaul ship utilisation in the East-West trades averaged close to 90%, aided by void sailings. 

But following the heavy depreciation of spot rates in the first quarter, there was some evidence that carriers had called off the market share drive rate war for now, with Asia-Europe freight rates trending upwards since April while transpacific rates have stabilised, Drewry noted. Ahead of the third quarter peak season, carriers had announced some capacity reductions in both lanes to give a push to their next GRIs, some of which are as requesting as much as another USD 1,500 per TEU, Drewry added. 

While carriers might be shooting for the stars, they will probably land somewhere in between, if recent history is a guide, Drewry said. There is a long way to go before we can truly call a recovery in spot freight rates.

(The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).)