Transshipment opportunity for India. 19 May 2016

Transcription

1 Transshipment opportunity for India 19 May

2 Summary India has a window to capture the Transshipment opportunity, and ports on the southern tip could be well positioned to do so It is critical to achieve traffic of 5-6 mn TEU in first years of commercial operations. However, significant investment risk can be mitigated by getting upfront commitment from liners as in the case of Salalah port which got investment from Maersk Lines King Abdullah port which got investment from MSC To ensure success of Transshipment port, following are the must- have s from shipping liner s perspective: Minimum deviation from existing East-West trade route followed by international shipping liners Improved operating framework High operating efficiency Commitment of long term discounts to the liners Potential for expansion of transshipment port, with additional bulk/ container gateway traffic Supporting legal framework Best in class regulatory and legal framework (labour laws, dispute resolution mechanism, etc.) Relaxation of cabotage law and taxes levied on the Indian coastal ships SOURCE: Team analysis 2

3 China is key driver of container trade from Asia to other parts of the world xx xx No. of TEUs in Mn. (2014) , Mn TEU China container volumes 174 mn. TEUs India container volumes: 10.7 mn. TEUs Key trade routes Asia to/from Western Europe Asia to/from West coast USA Asia to/from East Cost USA Chinese gateway Volumes Indian transshipment Volumes Current Indian container volumes are not enough for attracting shipping lines any further than a minimal deviation from the trade route

4 Globally, there are 2 models of transshipment Hub and spoke transshipment Hub and spoke involves a transshipment from a smaller port to a larger port in a feeder vessel transshipping into a mainline vessel e.g. Colombo, Dubai Rotterdam Relay: Containers coming from Durban exchanged here for going to Rotterdam, Colombo and Singapore Spoke Kolkata Jeddah Salalah Hong Kong Relay trans-shipment Hub Relay ports for the transshipment between large ships located where major routes for the shipping of containers cross e.g. Singapore, Salalah SOURCE: Expert discussion Colombo Singapore Durban 4

5 Most transshipment ports have minimum capacity between 5-10 Mn TEU annually Most transshipment ports are in clusters with most ports with capacity of ~5mn TEU or expanding towards that Current Capacity Jebel Ali Tanjung Pelepas King Abdullah Singapore Salalah Planned Expansion 1 Port Kelang Singapore 40 - Tanjung Pelepas 11-4 Salalah Jebel Ali 19-6 King Abdullah 20 7 Colombo 5 ~9 Colombo Port Kelang 1 By By SOURCE: Expert interviews and ADB 5

6 ~25% (2.7 mn TEU) of India s container traffic is transshipped 85% (2.4 mn TEU) is from/to Western Europe and the US Mn TEU Coastal shipping xx xx No. of TEUs in Mn. (2014) Transshipped Gateway Key trade routes India to/from Western Europe India to/from West coast USA India to/from East Cost USA 6

7 Majority of transshipment happens from East Coast ports Indian port shipping TS cargo abroad , Mn TEU ~ 2.7 Mn TEUs Trans-shipped from India Foreign TS hub handling Indian cargo ~75% of India's TS cargo is from the east coast ports; ~75% of TS cargo gets handled in Colombo, Spore & Klang Coastal shipping Transshipped M TEU 0.5 M TEU 0.1 M TEU 0.5 M TEU 0.2 M TEU 0.5 M TEU M TEU 0.2 M TEU 0.5 M TEU Gateway 1. M TEU 1.0 M TEU 7

8 India transshipment traffic contributes 40% of Colombo volumes Container throughput at Colombo (2014) Million TEU, double handling /24 /16 1 Single handling SOURCE: Expert interviews; Drewry, CRISIL, DP world 8

9 Indian Transshipment traffic to become ~12 Mn TEUs by 200 ~12M TEU s estimated to be Indian sub-continent traffic by 200 xx # of TEUs TS from/to India in Mn (200) xx # of TEUs TS from/to Indian subcontinent in Mn (200) Regional ports have aggressive ramp up plans Colombo (SL) Current capacity: 5 M TEU Target capacity: 1 M TEU Hambantota (SL) Target capacity: 20 M TEU Male (Maldives) Plans to develop new TS hub Europe West Coast of America East Coast of America Africa 0. India 1 Male planning is ongoing; capacity planned may change 9

10 A potential transshipment port in India could have 4 layers of opportunities 2014 volume Horizon 4: Singapore TS & relay Horizon : Relay shipment via Salalah Horizon 2: ISC hub & spoke Horizon 1: India hub & spoke Current subcontainer volume getting transhipped from Colombo continent traffic (except India) getting transhipped from Colombo (e.g., Bangladesh readymade garments to west 22 ~ ~ Current Indian Current opportunity1 Focus of today s discussion Relay transhipment volumes getting transhipped from Salalah currently due to nonavailability of service at Colombo Indian containers being trans-shipped at Singapore Relay transhipment volume getting transhipped from Singapore ~1 ~1 (Mn. TEU) 1 Includes double handling for transshipment 10

11 Deviation from main sailing route is the key determinant for Transshipment hub location Iran U A E xx xx xx Bhutan Pakistan ~ Extra sailing distance ~ Extra sailing days China ~ Per TEU incremental cost Bangladesh 570 nm 1.19 days $262 Oman Salalah Mundra Myanmar Vietnam India Laos Vishakhapatnam 161 nm 0.4 days $74 Chennai 76 nm 0.16 days $5 Cochin 748 nm 1.56 days 1060 nm 2.21 days $44 $488 Thailand Cambodia Bay of Bengal Arabian Sea Assumptions Hourly cost of TEU Vessel is $ TEU exchanged at port 15% contingency charge on deviation SOURCE: AECOM Vizhinjham 10 nm 0.02 days $5 Colachal Colombo 8 nm 0.02 days $4 19 nm 0.04 days $9 International Suez-Far East Trade Route Major shipping lines plying on the route Malaysia Indonesia 11

12 Cost of additional deviation per TEU Example South Indian port Per TEU incremental cost based on exchange of units USD per TEU Per TEU USD deviation cost ~5,000 TEU s are exchanged at JNPT & Singapore per vessel Even at high exchange volumes (5,000) deviation cost per TEU is prohibitive ($162) No. of boxes exchanged 12

13 Bringing in MSC to invest in the container terminal was key to the success of King Abdullah Port Public Private Govt (ECA) PDLA Value share PDC (Private Port Authority1) Revenue share NCT (Terminal operator) Main customer MSC (Shipping line) Equity TIL 65% subsidiary MSC Subsidiary has invested in the port (equipment only) along with a traffic guarantee of 7 mn TEU in a ramped up fashion with a revenue share of % to the private developer Although in alliance with Maersk, MSC has shifted its services out from Jeddah and Salalah (a Maersk hub) to KAP 6 services out of 10 already shifted Traffic ramp up to 2 mn TEU in 2nd year out of 5 mn TEU handled by MSC in the region SOURCE: ECA, PDC 1

14 and globally, certain key factors are critical for a transshipment port Cai-Mep (Vietnam) example Enabling factors 2 Deepwater port: Reasons for failure 1 Deviation from existing East-West trade route Lower than expected traffic led to shipping liners moving out after committing 5 Cabotage law Foreign flag carriers could not carry cargo between Vietnamese ports even if carrying EXIM 6 Presence of alternatives in vicinity Operations of inner-city terminals like Ho-Chi Minh city continued operations; which were to cease 7 Lack of scale and volume Traffic underperformed from estimates Lack of terminal connectivity inhibited gateway traffic Operators sought subsidy on pilot and terminal charges due to limited traffic Draft of mts Committed direct China Shanghai Taiwan Cai Mep Singapore East West trade route calls from shipping lines: 14 direct services to North America and Northern Europe committed to call at Cai Mep 4 Government support: Govt. of Vietnam extended their support and expediting the process of setting up of the port Deviation Deviation from from main main line line route route and and Cabotage Cabotage impeded impeded the the potential of Cai Mep to emerge as a transhi-pment hub potential of Cai Mep to emerge as a transhi-pment hub SOURCE: Expert discussions 14

15 Comparison of port related charges for relevant transshipment port Comparison of port related charges for relevant transshipment port Estimated port charges, USD per TEU 5/24/1 6 Discount provided on terminal handling cost to attract liners SOURCE: Scale of rates for each port; expert interviews Important for Indian transshipment port to match Colombo on port costs to remain competitive 15

16 Indian custom processes needs to be simplified and brought at par with competing ports Performance indicators Indian ports Klang Singapore Jebel Ali Colombo Rank as per perception of customs process Average number of documents Import Average number of documents Export Average number of signatures required Import Average number of signatures required Export 22 1 Clearance Lead Time in days Import Clearance Lead Time in days Export SOURCE: World Bank Study World Development Indicators

17 Key enablers for making a successful transshipment port Key enablers Infrastructure factors Minimal deviation 1 from main trade route Deep draft 2 availability Locking in anchor customer at early stages Simplified customs 4 process Enabling conditio ns Reviewing cabotage 5 law 6 Competitive tariffs What is required? Minimal Deviation from East West trade route Shipping liners base their decision of calling on a port on the basis of per TEU additional cost Minimum draft of mn. TEU s to enable capesize vessels with 16,00018,000 TEU s Commitment from a key liner minimum traffic guarantee Shipping lines choose hubs based on port handling charges, terminal ownership, politics and geographical location Move from manual & complex processes to central online platform to enable faster evacuation Coastal shipping is ~0% costlier for foreign flagged ships Need to review current levies/taxation (e.g., Tonnage tax, Employee tax, Bunkering tax) for making Indian transshipment port competitive Port charges need to be competitive compared to Colombo to attract shipping liners and traffic Consolidated contai7 ner volumes (gateway & transshipment) Ability to attract consolidated (transshipment and gateway) cargo for Ease of doing 8 business and stable operations Liners consider ports which can provide smooth operations all weather, providing economies of scale to the liner for the extra deviation 24*7 service, no labor issues, etc. SOURCE: Team analysis; Expert interviews; literature search 17