Impending capacity crunch at Port of Colombo

The Port of Colombo has clearly established itself as the main regional transhipment hub port over the last decade by virtue of the transhipment volumes which have grown unabated except for a few brief patches during the “trough” period of the shipping cycles.

The last “trough” was an extended and a deep one due to the industry’s worst ever recession further aggravated by the global economic crisis during the year 2009.

The Port of Colombo for the time being, can very comfortably sit on its laurels given the comfort of easily meeting the basic key attributes of a transhipment hub. These attributes namely, the strategic geographic location astride the main east-west shipping route, complimented by the provision of very reliable and efficient port services  at very competitive tariff rates are a boon to the shipping lines.

This is further supported by having adequate water-depth in the harbour to handle the present large container carriers and good basic port infrastructure, not excluding the most convenient and user-friendly customs procedures/practices for handling transhipment cargo.

However, to retain this position into the future is a major challenge. This needs to be addressed with a long term view, given the developments that are taking place in other competing and potential hubs and more importantly in the context of the rapid development of very large container carriers that are now being built by the top container Shipping Lines in the world.  

Current status

The strategic location of Sri Lanka on the main east-west shipping route with access to the other arterial shipping lanes to the Middle East and East Asia gives Sri Lanka the head-start that cannot be taken away by any competition that is vying to replace Colombo as the main regional transhipment hub.

The location advantage being a key component in the selection criteria of any hub-port, the Port of Colombo is a winner. However, as time has proven, this factor of geographical location alone would not suffice for Sri Lanka to maintain this status over the next few decades. The competition is getting wider and stronger with more and more ports vying to achieve the transhipment hub status.

The Port of Colombo has an inherent weakness in that the volume of origin/destine or local import/export cargo volumes are “very limited” when compared to the Indian ports from where the major transhipment volumes are generated to Colombo. But this is a factor that is outside the control of the Ports Authority to directly address.

Another contributory factor is the inability to attract major Shipping Line representation offices into Sri Lanka – they are an important element in the equation and it is they who would be able to leverage on the plusses and finally determine on the best option/location for their transhipment hubs. They indeed play a key role in this decision making process.

There is much room for improvement in this area of attracting the major Shipping Lines to locate their regional offices into Colombo. This is especially with regard to regulatory requirements etc., in comparison to practices in other Asian and Middle Eastern countries which are vying for the same transhipment business.

Colombo as the major regional hub

The vision of the government of Sri Lanka is to make Sri Lanka the regional maritime hub. This has been firmly established by the fact that the Ports Authority is forging ahead with massive development work both within the Port of Colombo and other ports coming under their purview.

Therefore it is appropriate and timely for the authorities to view the future development of the container handling capacity of the Port of Colombo with a much longer term view of the supply/demand situation for container terminal capacity in the region.

This of course needs to be done not only based on projected cargo growth, but bearing in mind two very important recent developments which are evolving in the industry. These two developments are:

A)    The significant increase in size of container carrying ship/vessel capacity which is developing much faster than projected/expected – the number of ships being built with over 10,000 TEU capacity over the next couple of years is 145,  out of a total of 626 ships on order. But from a TEU carrying capacity point of view this represents 46% or over 1.9 million TEUs from a total of over 4.0 million TEU capacity that is on order during the same period. The Port of Colombo as it stands now is unable to handle a standard discharge/load exchange on any of these vessels.  

B)    The cycle time of technology development in the shipping/port industry is shrinking at each successive stage, posing serious challenges to all the stake holders in the industry, with the ports/terminal operators facing the biggest challenges.

There could be a myriad of other reasons that come into the equation as to why the whole supply/demand situation on the Colombo Port capacity needs to be reviewed, not least because of the perceived threat from Vallarpadam. But these would all revolve around the above mentioned increase in ship capacity and the rapid change of technology, both of which would have significant impact on the shore-side cycle of the movement of containers from ship to shore.

Whilst the volume growth in relation to GDP in the region has been addressed in all studies carried out by international analysts – the above two issues have not been given adequate and due recognition.

 Global practises

There is an industry wide rule that has been practised and proven by the major global port/terminal operators. This is to build container terminal capacity well ahead of the demand. This becomes even more relevant and critical when the very sustainability of the port/terminal is dependent on transhipment volumes.

The reason being, transhipment volumes have no loyalty and is therefore volatile to the extent of being shifted overnight from one transhipment hub to another hub, in order to get the best benefit for the Shipping Lines.

Currently the Port of Colombo transhipment volumes represent almost 80% of the total volumes handled – reflecting an average growth of almost 10% over the last 5 years. This is as good a reason or the best “beacon-light” for the Port Authority to review the stand taken on the development stages of capacity enhancement, in the South Harbour of the Port of Colombo.

The port and shipping industry knows too well, that transhipment business is a highly volatile business which can move to any competing port at very short notice. A classic example being what the Port of Singapore experienced in the not too distant past, when the Port of Tanjung Pelapas opened for operations in Malaysia.

Some of their long standing major customers who were very large global shipping lines switched loyalties and moved out virtually overnight the Port of Singapore was compelled to take some drastic corrective action in order to stop the haemorrhage of transhipment volumes, including the introduction of various incentives that came at a cost to the Port.

The Port of Colombo could best avoid going down the same “channel” by taking a page off the Port of Singapore experience. To do this, it is necessary to do a complete review of the time scales that have been spelt out for the development of the various stages (south/east/west terminals) of the Colombo South Harbour project.

More specifically, this is the opportune time to re-assess the capacity enhancements at the Colombo South Harbour, vis-à-vis the rapid development of ultra-large-container-carriers (ULCC’s) and how best to meet the berthing and shore-side cranage requirements, etc. that would be demanded by these ship owners.

There is no dispute with regard to the yard capacities based on the currently planned stages of development —but the issue is the berthing capacity requirements when two or three of these leviathans call the South Harbour on similar days and or similar/berthing windows.

Accordingly, with the currently planned stages or the time frames of developing the east and west terminals – the Colombo South Harbour will not fall within the spectrum of hub-ports that the major players will be evaluating in the near future.

Conclusion

Based on what is in the public domain, the Ports Authority has decided to initially embark only on the development of the South Terminal in the South Harbour, which itself will only be – hopefully ready by the second half of 2013. This was a correct decision based on the various historic data available and the criteria used for such decisions at the time of the feasibility studies.

However, the time delays experienced in the award of the contract has now brought about a new dimension and gives an opportunity to review the time scales for the development of the East and West terminals of the South Harbour project.

Colombo should get maximum benefit by taking full advantage of this delay. As mentioned above, the parameters and technology have changed significantly, calling for a critical review of the time scales for the development of the other two terminals within the Colombo South Harbour. This would certainly enable the Port of Colombo to be well ahead of any competition from within the South Asian region and avoid the berthing capacity crunch that will be inevitable.

This opportunity to review the time scales for developing the East and West terminals should not be missed at any cost. If not, the end result would then mean that the ultra-large-container-carriers (ULCCs) which will be predominantly straddling the Asia-Europe services from year 2013 onwards will have only one berth to handle such capacity ships in the Port of Colombo.

The Asia-Europe strings which generally consist of six to eight vessels even with extra slow steaming, will not have sufficient berth capacity to be serviced at Colombo. The inability to service these strings would mean Colombo will not feature, and could very well be off the “radar” of the major players who have already ordered these new ULCCs specifically for the Asia-Europe services.

The time is just right to establish a direct dialogue with the major players in the global shipping arena and get a first-hand input on what their thinking is on developing such terminal/berthing capacity.

It is a fact that these mammoth liners would be guzzling tonnes of environment damaging heavy fuel, per each day of operation at sea. Hence our location advantage together with the additional berthing capacity could certainly prove to be the winning combination to beat the impending berthing capacity crunch.

(The writer is a Fellow of the Institute of Marine Engineering Science and Technology – FIMarEST, UK and a Fellow of the Chartered Institute of Logistics & Transport – FCILT, UK.)

References:  Lloyds List/Containerisation International/HKSG/Alpha Liner