Port of Colombo – The way forward

The transhipment container volumes over the Port of Colombo are almost totally dependent on volumes coming in/out of India. In fact 80% of the transhipment volumes handled by Colombo are either originating from or destined for an Indian Port.

From a Colombo Port container terminal perspective, it is not the best of situations to be in – i.e. being dependent on one customer, namely Indian volumes, for the major portion of the business or the very survival of the container terminal business.

Current scenario

It is a fact that transhipment volumes are not a captive business. This is unlike the local or domestic volumes, which by default needs to be handled at Colombo or Hambantota, or Trincomalee, whichever the case maybe.

However, the domestic cargo or the import/export cargo continues to gain significant freight rate advantages on the strength of the main-haul services calling Colombo to collect the transhipment ‘Indian volumes’.

Therefore it is timely and even more critical not only from a port perspective, but also from the point of view of the domestic import/export industry, to address this issue of dependency on a single cargo base. This is so purely from a commercial and business angle and not due to any geopolitical developments as portrayed in some media.

There is no doubt that the Indian volumes will be the main stay of the Port of Colombo and continue to play a predominant role for some years to come. This is proven by the historic and current data of the Port of Colombo.

The various feasibility studies carried out by many reputable global shipping and port consultancies have also confirmed this. In fact, some of the funding for the major infrastructure projects in the Port of Colombo by the Asian Development Bank and the International Finance Corporation has been based on these statistics and data.

The trade figures for the last two years have shown that some of these growth projections for Indian volumes have overshot the mark and it appears that it will continue to be so at least into the medium to long term. By the same token, it must be realised that the development of Indian ports continue at a rapid pace specifically with the intention of providing direct shipping services for their cargo.

In the global shipping market too, the transhipment of cargo has a major role to play and it will continue to be so in the foreseeable future. Due to the increase in ship size and capacity, the cost of calling many ports in the same region is not a cost effective exercise to a shipping line.

Furthermore, most of the Indian ports as they stand now are unable to accommodate the ultra-large container-carriers that are now being introduced to the main haul services. This is mainly due to restricted depth and other infrastructure and labour related issues which are perennial in nature.

Whilst all of the Indian ports could not be categorised under these criteria, the geographical locations of some may not ideally fit into the shipping line’s requirement of minimum deviation. With marine fuel prices being what they are and no signs of any significant change over the medium to long term, Colombo will continue to fit into the shipping lines equation as far as the location factor is concerned.

Given the foregoing, it is now a good time for Colombo to review the options available and re-strategise on how to sustain and consolidate our position as the major regional hub-port. To do this, it is essential to understand the fundamentals of the different forms of transhipment that are carried out in many global transhipment ports.

The different forms of transhipment

Pure transhipment: This is the form of transhipment that has been in practice in Colombo over the last three decades or so, and is commonly known as the hub and spoke concept. How this operates in practise is the main-haul vessels call the hub port and these vessels are in turn fed by the smaller feeder vessels which ply between the hub and the smaller feeder ports in the region, thereby reducing the number of port calls made by larger and more expensive to operate main-haul ships.

Colombo has been a major success story in this form of transhipment, not purely due to its strategic location but due to many other factors. The infrastructure facilities in Colombo with reliable 24x7 operations are an important factor. Being backed by the region’s best known feeder shipping lines together with their wide feeder network that connects Colombo to the regional ports are also key ingredients in this success story.

Relay transhipment: In this type of transhipment the physical shore-side terminal operation remains the same as pure transhipment. This concept enables the shipping lines to maximise the revenue on their main haul services. It is done so by connecting a main-line service that is plying the east-west shipping route with a service that is plying the north-south service at a geographically well located hub port. It also helps the shipping lines expand their coverage reducing transit time for their customers.

Many industry analysts are of the opinion that this type of transhipment will continue to grow, the driving factor being the increase in vessel size capacity and thereby the increase in operating costs of calling many ports. Here again with the introduction of the ULCCs, the inherent advantage of Colombo’s geographical position will be the key.  Inter-lining transhipment: In this form of transhipment too, the terminal operation will be similar but much more complex as it involves a combination of the two previously mentioned types of transhipment. Ports and terminals have to play a very critical joint role with the shipping lines in this operation.

Challenges for Colombo

The Port of Colombo’s claim for the regional hub status has always been under challenge from other major hub-ports such as Singapore, Port of Tanjung Pelapas, Port Kelang, Dubai, Salalah, Jebel-Ali, Khorfakkan, Fujairah and so on.

This challenge has been further reinforced by the fact that the Indian regulatory authorities driven by the Indian import/export trade are providing various incentives to encourage direct shipping services to most of their major ports.

This is a natural turn of events. It is nothing new and something that was expected by all transhipment hub-ports that were enjoying the benefit of the unprecedented growth in Indian volumes over the last couple of decades.

Three of the top-end global terminal operators have firmly ‘anchored’ themselves at some of the major Indian ports as private terminal operators. It is reasonable to assume that they too will be strategic in thinking and do their ‘number’ to ensure their ‘home-ports’ continue to benefit from the transhipment volumes coming in/out of India.

Additionally, by way of Vallarpadam, India’s first advertised International Container Transhipment Terminal has also become a reality. This facility after going through many opening ceremonies is yet to deliver. But it could very well be a matter of time before the private operator Dubai Ports World (DPW) the concessionaire, decides to up the game a few notches albeit at some initial cost to itself.

Known for their deep pockets, such a move will not be much of a surprise to the industry. By this they will also ensure more goodwill from the port trusts in India, as DPW are majority stakeholders and operate a number of ports at very critical locations in India.

Conclusion

The current utilisation levels of a majority of the Indian ports are said to be over 80%, whereas the industry norm for an optimal operational efficiency should be more in the region of 65% to 70%. Furthermore, the Indian port projects in the pipeline are generally slow off the blocks. Anyway there is a significant gap between the planned capacities coming on stream and the projected growth, and this is a plus for Colombo.

However, this alone should not be the only reason for the Port of Colombo to review the challenges ahead. It is now necessary to develop a strategy that would at least initially set the pace to attract and focus on the other categories of transhipment through Colombo.

Especially with the ongoing development of new container terminal facilities in Colombo, this is as best a time to launch a new initiative to widen the scope of our ‘catchment’ for new transhipment volumes.

Whilst there is an insignificant volume of relay transhipment taking place right now over Colombo, it is time to launch a more aggressive approach to attract the relay transhipment volumes over Colombo, sooner rather than later.

In fact, some of the ports that are directly in competition with Colombo for these relay transhipment volumes have adopted these practises with much success over a period of time.

Of course Colombo did not have the necessity to pursue the relay volumes in the past, for two important reasons. Firstly it was obligatory by default to continue supporting the Indian volumes and shipping lines that were supporting Colombo over the years. Secondly, the exponential growth of these volumes did not compel the Port of Colombo to do otherwise, due to capacity constraints. However, with additional capacity coming on stream it is prudent to widen the transhipment base.

Having said all of the above, there is also a general consensus among the global terminal operators that Indian volumes will continue to grow into the foreseeable future, and for the interim, that could very well be the safety net for the Port of Colombo.

(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.)