Big box lines such as MSC jostle for presence as Vizhinjam looks set to open next year – ET Infra

MUMBAI: Big global container lines are weighing the prospects of making the upcoming container transhipment port at Vizhinjam in Kerala as a hub, with Mediterranean Shipping Company S A, the world’s largest, emerging a top favourite to partner with Adani Ports and Special Economic Zone Ltd (APSEZ), which is building the new port that is slated to start operations by March next year. A potential deal with MSC will help APSEZ underwrite the volumes for the One million twenty-foot equivalent units (TEUs) capacity first phase of the international container transhipment terminal at Vizhinjam, designed to cut India’s dependence on nearby Colombo port to send and receive cargo containers, shipping industry sources said.

The contours of a potential deal are in the early stages with no finality on whether MSC will take an equity stake in the terminal having a berth length of 800 metres or just opt for an exclusive arrangement with APSEZ at Vizhinjam for its hub needs, the sources added.

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“Nothing has been finalised as yet,” the sources said, adding that an announcement on the deal could take as much as six months and is expected just ahead of the part commissioning of the terminal (400 metres quay) by March next year. The first phase of Vizhinjam Port will be fully commissioned two months later in May when another 400 metres quay will start commercial operations.

A spokesman for the Geneva-based MSC said it “declines to comment” to a mail sent by ET Infra seeking comment.

Responding to an analyst query during the 8 August post financial results call on whether APSEZ would look at divesting equity to an anchor customer (shipping line) as a strategy to gain transhipment volumes at the new port from the start of operations, Chief Executive Officer Karan Adani said: “As of now, we are not looking to divest any equity. We have enough interest from shipping lines to make this as a hub. We are looking at more on being cost competitive in that region, that is how we are looking at it”.

While Adani Vizhinjam Port Pvt Ltd, a wholly owned unit of APSEZ, has signed the concession agreement with the Kerala government for developing and operating the new port for 30 years, the port operator is free to work out an “internal arrangement” for partnering with a shipping line, Kerala government sources said.

“They are free to work in their style. Why should we interfere in whom they are tying up with for their business. We are interested only in seeing that the Vizhinjam Port garner volumes,” said a state government official.

Partnering with shipping lines has been a strategy successfully adopted by APSEZ to bring volumes at its flagship and India’s biggest commercial port at Mundra in Gujarat where MSC and CMA CGM S A, the world’s third largest container line, have 50 percent stake each in two separate terminals run jointly with the port’s unit of Adani Group.

Such strategic partnerships with top global box lines seek to foster value creation, unlock opportunities, mitigate market risks while facilitating growth, APSEZ said in its recent annual report.

The container shipping industry feels that the backing of a large carrier will be key to Vizhinjam Port’s success.

“You have to shift one big container line, lock stock and barrel into Vizhinjam Port similar to what happened with Malaysia’s Port of Tanjung Pelepas when it started operations in 2000,” said the India head of a Dubai-based feeder shipping company.

“There was no way Tanjung Pelepas could compete with Singapore which is one of the world’s biggest container transhipment hubs. What Tanjung Pelepas did, they gave Maersk Line a ‘royal package’ and Maersk Line withdrew lock stock and barrel from Singapore and created Pelepas as its transhipment hub. Once they moved to Pelepas, a few of its service partners also shifted to Pelepas and the port was full,” he explained to underscore the importance of partnering with a big carrier to garner transhipment volumes. Maersk Line was then the world’s top container line owned by Denmark’s A P Moller-Maersk A/S.

A P M Terminals Management B V, the container port/terminal operating unit of A P Moller-Maersk, now holds a 30 percent stake in Pelabuhan Tanjung Pelepas Sdn Bhd (PTP), the entity that runs Malaysia’s top container transhipment port and one of the world’s busiest container ports, ranked 15 out of 100.

Incidentally, A P M Terminals also holds a 32.81 percent stake in South Asia Gateway Terminals (Pvt) Ltd, one of the four container terminals operating at Colombo Port.

The Vizhinjam Port is being developed as a container transhipment port with an investment of Rs7,700 crores, including a public-private-partnership (PPP) component of Rs4,089 crores, to compete with Colombo because its basic infrastructure such as water depth and proximity to the main shipping lane is better than Colombo — the biggest transhipment facility in the region.

Vizhinjam, according to port and shipping industry sources, is best suited to cut India’s dependence on Colombo to send and receive cargo containers entailing extra time and costs for exporters and importers.

Vizhinjam has 20 meters of natural water depth that allows big mother ships to dock, a key requirement for hosting a transhipment hub. Further, the port is only 12 nautical miles from the international shipping route, giving direct access to international trade. Being a private port, it is free to set rates based on market forces.

Annually, around 3 million TEUs of India-bound cargo containers are transhipped at Colombo, Singapore, and other regional ports, according to government estimates. Colombo, Singapore, and Port Klang handle more than 85 percent of this with Colombo alone handling about 2.5 million TEUs.

“Given the extra port handling charges incurred at the transhipment hubs, transhipment of cargo results in logistic cost inefficiencies for Indian industry. The additional port handling cost is to the tune of $80-100 per TEU, which could be saved if the container was imported/exported as direct gateway cargo instead of being transhipped,” the Maritime India Vision 2030, a ten-year blueprint for the maritime sector, pointed out.

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