Container Shipping & Indian Ports: Set to Outpace Previous Records

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(Image Courtesy: Safety4Sea)

Containerised trade has been the fastest-growing market segment, accounting for less than 20 per cent of global seaborne trade but earning two-thirds of the total global trade value. A new trend that is unfolding globally now is the continued penetration of containerisation into bulk trade.

The world fleet of container ships by January 2017 consists of 5,098 container ships with a total capacity of 19.7 million twenty-foot container boxes (twenty-foot equivalent unit, TEU, is a standard measure of container capacity). According to Clarkson Research Services, total container trade volumes amounted to 175 million TEU (about 1.7 billion tonne) in 2015.

In India, the outlook for the container shipping market in 2018 and 2019 is a combination of healthy demand growth that will outpace the fleet; resulting in a better supply-demand balance and slightly higher freight rates and profits for carriers.

However, the market is unlikely to see the very strong demand growth rates of early 2017. The encouraging news is that while port handling growth may have peaked, they can still expect more than adequate volumes for at least the next two years. The containership fleet, how those will combine to affect freight rates and carrier profitability through 2019 and how well the Indian ports amplify handling capacity and infrastructure will dictate the course of boxship industry in India.

Indian Ports

Mega containerships of 18,000 TEU (Twenty Foot Equivalent) need a draught of about 16 metre plus, which Indian ports lack. While there is a scope for Mundra port in Kutch district of Gujarat to upgrade to required draught things are yet to be reflected on ground. Same is the case with India’s flagship container handling terminal at Jawaharlal Nehru Port (JNPT) in Mumbai.

Vizhinjam port in Kerela, which is being developed by Adani Ports and Special Economic Zone Limited (APSEZ) is well framed to evolve as India’s first Mega Transhipment Container Terminal. It will not only be the anchor point in South India but also India’s gateway to International transshipment.

The Vizhingam port will have 18 metre depth, and will be India’s first port to receive largest mother ships upto 24,000 TEU containerships. Ports like Dhamra has a depth of 18-metre but they are yet to develop a container park. No other container port has that kind of depth so far.

 

Infrastructure Limitations

Containerships are known to be busy vehicles circumventing the globe throughout the year. Their waiting period (for loading and unloading) is significantly low, as compared to other large commercial ships. Major Indian major ports like Paradip, Krishnapatnam and Gangavaram have significant draught but they do not have adequate the facility for container handling.

These vessels usually travel on the trade route, so they would prefer berthing in a port which falls on the ‘International Trade Route.’ So the major movement of mother containerships in South Asia is in and around Colombo and Singapore. While feeder vessels (small containerships) ferry containers to either Colombo or Singapore from where the cargo is transshipped to the rest of the world. Same proposition applies for incoming cargo.

Stakeholders of the industry are binding many hopes with Vizhingam Port which is hardly 20 nautical miles from the International trade route. Once Vizhingam Port comes up, a majority of transloading activities between mother ships and feeder vessels will shift to Vizhingam.

Hub and Spoke Model

In practical terms, handling large containerships is only relevant to transloading ports. For a peninsular country like India, coastal shipping, functioning in the hub-spoke-model fits best for movement of container cargo. In India, only the southern tip is close to the world trade route.

Therefore the most feasible and profiting prosposition for shippers is to carry containers on smaller ships to a Hub (major port) located on the southern tip, from where the cargo is loaded and transshipped on larger vessels to international destinations.

Apart from enhancing depth of the terminals and dredging, the port operators in India have to combat another issue of ‘Silting.’ This phenomenon hinders mega ships from a majority of Indian ports. The Vallapatnam port within 50 nautical miles of the International trade route battles this problem of silting which prevents attracting big vessels.

A decade ago, many Indian ports such as Nhava Sheva and Chennai were perpetually congested with structural lack of capacity. Today the picture is very different.

The expansion of some major ports such as Nhava Sheva and Mundra, coupled with various productivity improvements, a gradual improvement in infrastructure, and the introduction of new non-major ports such as Kattupali, Krishnapatnam and Paradip have all created a situation of balanced capacity. Assuming current levels of productivity remain stable or improve, India is well positioned from a port perspective.

Cabotage Waiver

With the new cabotage law in place, India has the opportunity to compete on equal terms with neighbouring countries. Indian ports are currently unable to compete with the likes of Colombo, Salalah, Tanjung Pelepas and Jebel Ali.

More than 30% of Indian container traffic is transhipped at ports outside India – in fact 78% of cargo originating from or destined to the East Coast of India is transhipped at ports outside India.

The cabotage reform will be an enabler to enhancing India’s global competitiveness by bringing greater competition in the coastal feeder market, and enable Indian ports to equitably compete for transhipment traffic. Government will however have to fast-track the development of a viable transhipment port, and deepen the draft at major ports to handle larger vessels.

Future of Container Shipping

There are a slew of factors which dominate container shipping and subsequently percolate to the performance of the industry in the sub-continent. The problem of excess capacity in container shipping is likely to continue.

Supply-demand imbalance has been a perennial challenge in the shipping industry around the world for quite some years. The orderbook, which currently stood at 12% of existing fleet capacity at the end of 2017, is quite reasonable, given that containerized demand is increasing 3-5% annually. India’s containerized demand growth is far higher than the global picture, and in fact grew 11% in Q1 2018. Capacity added in recent years has largely been demand-led.

To make matters tough, the marginal recovery in the container shipping freight will get almost wiped out by a steady stream of arrival of new container ships which will compound the problems of recovery in the near future.

India’s trade with the world is a key contributor to propelling businesses and creating jobs and economic prosperity. With greater accessibility to global markets supported by services provided by the shipping and logistics industry, businesses across India’s diverse topography can take their products to new shores, in turn complementing the Government’s Make in India and job creation vision.

(References: TransReporter, The Hindu, with inputs from Santosh Mohapatra (a port industry veteran))

Sea News Feature, November 30

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