As China fades as the filler of low-end boxes, south and south east Asia take centre stage
 AN east-west inter-port rivalry has taken shape along the richest of the world's trade lanes as each seeks to take advantage of the disadvantages posed by mega ships that have come to dominate the trade.
As low-end manufacturing migrates from a more affluent China to areas of cheaper labour in south east and south Asia, and ships become bigger and carriers more cost conscious, transshipment ports along the way have come into their own as fierce rivals.
While mega ships' sizes have cut slot costs, they have also reduced the number of ports they can use. Even if these ports had the channel depths, the quay lengths and road and rail facilities needed to accommodate them, there simply isn't the cargo to justify calls without multi calls, which run afoul of cabotage laws.
Talking up his own port, Colombo International Container Terminals (CICT), general manager Tissa Wickramasinghe reviewed the situation before the 450 delegates the TPM convention in Shenzhen, and saw Sri Lankan ports as first among rivals.
While some sneer at transshipment ports as a double-counting cheats with inflated TEU numbers, they now emerge as vital elements in a carrier supply chain strategy. True, their throughputs are inflated. Gateway ports count boxes once going in or going out, having either left or arrived at the port's landside while transshipment port boxes are counted twice, once on arrival by ship and once on departure by ship.
But because megaships cannot operate at smaller port of origins where low-end manufactures are made, a hub and spoke system has again come into its own as a game changer in much changed circumstances. And the game is more keenly played than in that teardrop-shaped country south of the Indian subcontinent, Sri Lanka.
Mr Wickramasinghe, the CICT general manager, was the first to point to rival ports, though some of their efforts he found more political than pratical.
"There is Salalah run by APMT, then you have Dubai, Korfakhan, on one side, and Tanjung Pelepas on other also run by APMT, then you have Westports and of course Singapore," he said.
"So they are after the same market as we are. Interestingly Singapore plans to take up its capacity up to 65 million TEU. At the same time, they are developing another port terminal costing US$4 billion. I don’t know the logic behind it, but that is what is happening, and even with that spend, the draft will be restricted to around 14 and a half metres," he said.
Not surprisingly, Colombo's focus is on India with CICT's eye fixed on India and its galloping GDP growth, as a source of transshipment cargo and with enough consumer power to arouse a short-sea carrier's interest in the backhaul trade.
Thus, with a focus on servicing the west coast of India from Mundra in the north and Vizhinjam in the south, both having container facilities in different stages of advancement and will to avoid transshipment through congested Mumbai.
And while India's Modi government has eased cabotage laws to allow foreign carriers in to what has been an exclusive domestic trade, this liberalisation is more apparent than real as domestic coastal shipping lines put up a staunch rear guard action to ensure regulations on foreigners were so stringent as to make the trade unprofitable, insisting for that 50 per cent of their cargo from these ports be transshipment cargo.
Evidence that Colombo's location is in an ideal position to serve 11,000 kilometres of Indian coast line as a prime transshipment port is shown by the fact that so many top shipping lines and their terminal operating units, are participating. Hong Kong-listed China Merchants, with its holding arrayed throughout China has opted to make its first overseas foray from Colombo.
Of course, the big draw is Indian transshipments, which leaves short-sea operators little choice but to move cargo through Colombo and with the World Bank and the Asian Development Bank singing the praises of India's economic growth now running between eight and 10 per cent a year. Nor is it surprising that major carriers and their port operating units cluster in Colombo.
To Mr Wickramasinghe this is just the begining. The more his Columbo hub grows, the more it grows and grows into a virtuous circle of greater and greater development. Protectionist memes ebb and flow in the world, but prosperity is rising in the world, even in the poorer world, and with it grows demand for the low-end goods that fill shipping containers.
"India remains the fastest growing economy in the world as projected by the World Bank," he said. "Other than one country on that map, everybody else [south and south east Asia] is on the increase and moving upwards. That’s a bright light, this region is in the bright light. Where does that nine per cent growth come from? Mostly from India, it has been projected again by the Asian Development Bank that eight per cent of this growth will come out of four countries, namely India, Pakistan, Bangladesh and Sri Lanka."
What brought transshipment and transshipment ports on east-west routes to the fore were a number of factors coming together at the same time and creating each other in some cases: corporate consolidation, the birth and re-birth of even larger vessel sharing agreements, the trend towards mega ships, low freight rates, low oil prices and low slot costs.
Low slot costs and low oil prices combined to produce low rates, which while unsustainable even over the medium term still facilitated trade flow in a period of shirking demand during a period of uncertainty in both the US and Europe. This was also accompanied by a related fall in once promising growth in emerging markets. The only bright spot was a rise in Middle East consumer demand.
Taken together carriers were faced with unsustainable low revenues to meet costs that were lower, but not low enough to produce profit. The only avenue to profitability was a massive cost-saving undertaken at every level. No cargo could be left behind if utilisation were to be maximised.
Mega ships could not dock at smaller ports with neither the water depth nor the cargo capacity needed to sustain a sustainable trade. Thus mega ships with FCL, LCL, FAK could only dock at mega ports like Colombo or highly efficient modern ports like Salalah in Oman to discharge boxes and take on new ones, something that Daily Maersk operation in 2012 tried but proved too much for one liner however big. But with overcapacity and multi-carrier alliances, such schemes approach reality in an age when transshippments are king.
Said Mr Wickramasinghe: "So looking at the Port of Colombo, the whole port, not just a particular terminal, we have three players there, the government, ourselves and another shareholding terminal. So, 2014 we had 14 per cent growth, 2015, six per cent on top of that, and this year in the first six months we have double digit growth - 10 per cent. So these are all good signs and these are signs that South Asia has the potential to grow, and is growing."
As with so many things in shipping, what is obvious today is obviously false tomorrow. So what can be said of India smaller ports and their lack of accessibility for physical and financial reasons may well be an outdated conclusion within a very few years. By then India's eight to 10 per cent GDP growth will increase the size and strength of country's consumers and producers to generate new maritime and landside infrastructure and change the game once again. |
