Vallarpadam Port loses out to Colombo on smaller draft, higher charges

With deeper draft, pricing flexibility, Port of Colombo still a tough competitor for transhipment cargo

A relatively smaller draft, high vessel-related charges and a not-so-good location makes it difficult for Indian ports such as Vallarpadam in Kerala to keep tariffs consistently competitive in a market where the neighbouring Port of Colombo draws much higher volumes in the transhipment space.

“Port of Colombo is strategically located, as it is situated on the main trading lane. In comparison, Vallarpadam Port has a difficult location, and shipping lines need to travel a few more miles to come to this port. This means they will have to spend more time and money if they have to use this port for transhipment,” said Subrata Behera, manager-ports & container research of maritime consultancy firm Drewry. “Due to this, Vallarpadam has not been able to pick up as a transhipment destination despite efforts,” he added.

Vallarpadam Terminal, also known as Kochi International Container Transshipment Terminal (ICTT) is based on the west coast of India and has a draft of about 14.5 meters. This relatively smaller draft, compared with the 16-meter draft of Colombo port, is another hindrance to the development of the Indian facility as a transhipment hub.

“A shipping line engaged in transhipment would typically call several different-sized vessels from different regions of the world to one location and create a transhipment hub there. But for that, the size of the draft needs to be such that varied vessel sizes should be able to move in and out. It is here that Vallarpadam takes a hit, as its 14.5-meter draft is not big enough to accommodate all kinds of vessels. So even if there are just two out of seven or eight vessels of a single shipping line that do not fit into the draft, the shipping line will not make that port its transhipment hub,” explained an official with ICTT, on condition of anonymity.

ICTT, the first trans-shipment terminal in India is part of the Cochin Port Trust in Kochi, in the state of Kerala and also the first container terminal to operate in a special economic zone. Currently, DP World operates the terminal at Vallarpadam.

Since ICTT is part of Cochin Port Trust, it is the Tariff Authority of Major Ports (TAMP) that governs the tariff at this port. In comparison, the Port of Colombo has a more flexible pricing regime similar to that of private ports in India. Despite the regulations, however, Cochin Port Trust at present is charging $152 per transhipment container as against $82 at Port of Colombo. But with discounts, the terminal is charging $65 per transhipment container vessel which makes it lower than Colombo, said port officials.

“Though Vallarpadam can offer discounts from time to time, it cannot be a long-term solution, because Colombo, too, enjoys pricing flexibility and can easily offer more competitive rates,” said Behera.

TAMP's tariff structure is such that its vessel-related-charges component is seven- to eight-fold higher compared to that of the Port of Colombo has. Since these are audited costs taking into consideration cost of investment and tax, these charges cannot be lowered or done away though terminals can offer a discount, said industry officials. These charges are between port and TAMP, and a terminal operator is not involved in this section of costing.

Port of Colombo being a transhipment facility, its comparison with any port other than Vallarpadam in India is not a like-to-like case. "Ports on the east and south of India are mainly dry or liquid bulk ports and none are specific container ports except for Chennai to some extent," explained Hitesh Avchat, senior manager at Care Ratings. Over 95 per cent of Colombo's cargo volume is transhipment, as Sri Lanka is not a major manufacturing hub and does not really have a large and direct consuming or exporting cargo.

DP World set up the country's first Vallarpadam transhipment port after winning a concession in 2004. The hinterland of the port includes the state of Kerala and parts of Tamil Nadu and Karnataka. But, while the Vallarpadam terminal struggles to make any headway in the transhipment space, the Adani Ports-planned Vizhinjam in Kerala could have a lot of offer. Vizhinjam enjoys a location closest to the international shipping routes. It is just 10-12 nautical miles from the busy Persian Gulf-Malacca shipping lane, which accounts for almost a third of the world shipping traffic. Besides, it can also cater well to the needs of both the west and east coast of India. Vizhinjam has a natural depth of 18-20 metres which can allow handling of mother vessels.