Colombo Goes Deep

The major expansion rolling out at the Sri Lankan port of Colombo is underway in earnest, with the first phase of the first new terminal having opened in August. The port is being developed with an eye to capturing growing Indian transhipment trade. Although we note significant challenges to this, not least in the fact that India is slackening its restrictive cabotage laws for a number of facilities on the mainland, which would remove one of Sri Lanka's key advantages, we believe that the facility will be a success, as a result of its draught, the deepest in the region. Nevertheless, the additional capacity set to come online once the whole expansion project has been completed is huge, and it will be some time before these volumes are troubled.

Stage One Complete

The first phase of the Colombo International Container Terminals (CICT) has been completed. The terminal is part of a massive expansion project at the Sri Lankan port of Colombo, which will add 7.2mn twenty-foot equivalent units (TEUs) worth of capacity to the port at the Colombo South Harbour. The extra capacity will be made up of three different terminals of 2.4mn TEU capacity each, the first of which is the CICT. Set to be fully completed in 2014, the first phase can handle 800,000TEUs, with the remainder set to be added in two more equal parts.

A Growth Market
India's Total Ports TEU Handling Volumes

The major expansion rolling out at the Sri Lankan port of Colombo is underway in earnest, with the first phase of the first new terminal having opened in August. The port is being developed with an eye to capturing growing Indian transhipment trade. Although we note significant challenges to this, not least in the fact that India is slackening its restrictive cabotage laws for a number of facilities on the mainland, which would remove one of Sri Lanka's key advantages, we believe that the facility will be a success, as a result of its draught, the deepest in the region. Nevertheless, the additional capacity set to come online once the whole expansion project has been completed is huge, and it will be some time before these volumes are troubled.

Stage One Complete

The first phase of the Colombo International Container Terminals (CICT) has been completed. The terminal is part of a massive expansion project at the Sri Lankan port of Colombo, which will add 7.2mn twenty-foot equivalent units (TEUs) worth of capacity to the port at the Colombo South Harbour. The extra capacity will be made up of three different terminals of 2.4mn TEU capacity each, the first of which is the CICT. Set to be fully completed in 2014, the first phase can handle 800,000TEUs, with the remainder set to be added in two more equal parts.

CICT is being developed by China Merchants Holdings International (CMHI), which owns 85% of the terminal, and the Sri Lanka Ports Authority (SLPA), which owns the remaining 15%. The total investment in the terminal is set to be US$500mn.

The Riches Of India

The attraction of CMHI to invest such large sums in the Sri Lankan ports sector is clear. The company is the largest public terminal operator in China, handling 60mn TEUs in 2012, and it is keen to widen its reach. Sri Lanka provides significant growth opportunities, lying as it does on the major Asia-Europe trade routes, and within easy reach of the vast Indian market. Despite a drop in container handling last year, as exports to troubled markets in the eurozone fell, container throughput in India is set to grow hugely over the long term, lagging as it currently does an economy of that size.

A Growth Market
India's Total Ports TEU Handling Volumes

Sri Lankan ports, namely Colombo and the recently opened facility at Hambantota, have long benefitted from being able to tranship goods to India. Indian cabotage laws are restrictive, and prevent foreign shipping companies from participating in coastal shipping. This has meant that many shipping companies prefer to tranship from foreign ports such as those on Sri Lanka, in addition to the ports of Salalah and Jebel Ali in Oman and the UAE, respectively, so that they can use their own feeder services to arrive at the ultimate destination.

The port of Colombo handles 16% of India's transhipment of 10mn TEUs, according to Priyath Bandu Wickrama of the SLPA, and the port hopes, through expansion, to take this up to 23%. Given that India already accounts for 62% of the port's throughput, this would make the facility massively dependent on Indian trade.

We do note challenges to this. India has been trialling relaxation of its transhipment laws, in particular for newly developed ports such as DP World's International Container Transhipment Terminal at Vallarpardam near Cochin. There is a chance this could be spread for other ports, if the Indian authorities see themselves losing out to foreign ports. Further, shipping companies have been reflagging their vessels in India in order to ensure that they can participate in coastal shipping. One such company is the world's second-largest container shipping firm, Mediterranean Shipping Company (MSC) ( see MSC Reflags To Gain Transhipment Trade, August 1).

Stiff Competition
Keralan And Sri Lankan Transhipment Ports

An Ace Up Its Sleeve

There are two points that make the investment in Colombo more secure, however. The first is that it has been stressed that the cabotage relaxations are for a trial period of three years only, with the intention being that this will give the domestic Indian shipping sector a chance to develop sufficient fleets to carry out the coastal shipping themselves. Secondly, and of key importance, is the fact that the new development at Colombo has another advantage over both the Indian ports and the other regional transhipment hubs, and this is in the depth of its draught.

The depth alongside the new CICT berths is 18 metres (m), and the access channel is even deeper at 20m. This is considerably deeper than the 15m depth alongside that the older parts of the Colombo port have, and is among the deepest draughts in the world. This is crucial, as the trend for ever larger container ships being manufactured in recent years, as companies look for ever greater economies of scale, has necessitated that ports have ever deeper draughts in order to accommodate them. Market leader Maersk Line has launched its first 18,000TEU vessel this summer, and it is being followed by a number of other shipping companies in this.

With its 18m draught, the port of Colombo is the only port in the region that will be able to handle these vessels. This should ensure that, as more of them come online, it has a number of major shipping services calling at its facilities.

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This article is tagged to:
Sector: Freight Transport, Shipping
Geography: Sri Lanka, India
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