M&A, larger ships ramp up Asia transshipment competition

M&A, larger ships ramp up Asia transshipment competition

The Port of Colombo saw container throughput jump 13.5 percent year over year to just over 7 million TEU in 2018, with transshipment accounting for more than 81 percent of that total. Photo credit: Shutterstock.com.

The impacts of container carrier consolidation and larger vessels plying the Asia-Europe trade are changing the competitive stakes in the race for Asia transshipment cargo.

Of the JOC 2018 Top 50 Global Container Ports, Singapore (No. 2), Busan (No. 6), and Hong Kong (No. 7) are all heavily reliant on transshipment, while another primarily transshipment-oriented port, Colombo (No. 25), saw the fastest growth in 2018 of any port in the global top 30.

Because transshipment cargo is a more competitive segment of the container business than origin-destination cargo and, as a result, more likely to shift from one port to another — “footloose,” as Jonathan Beard, Hong Kong-based partner in Ernst & Young’s infrastructure advisory calls it — ports in Asia compete fiercely for containers shipped from countries that don’t yet merit direct calls from container lines.

“Transshipment hubs are getting larger and more complex,” Beard said at the Colombo International Logistics Conference in Sri Lanka in early August. “As vessel sizes increase, cargo comes from a larger range of lines outside of the vessel operators and it needs to go to more other lines. Transshipment hubs have to offer a lot of capacity to go after bigger lines. It’s an advantage if there’s one operator with contiguous facilities. Hong Kong, Busan, and Colombo, for instance, are at a disadvantage compared with Singapore.”

Beard’s comments came at a conference designed to highlight Colombo’s ambition to be a larger player in the Asia-Europe, Africa-Asia, and Indian subcontinent trade lanes. The port’s three terminals handled just over 7 million TEU combined in 2018, with transshipment accounting for more than 81 percent (5.7 million TEU) of that total, according to data from the port authority. The port saw 13.5 percent volume growth in 2018, higher than every port above it in JOC’s Top 50 Global Ports rankings and greater than all but three ports — Piraeus, Barcelona, and Rizhao — in the entire list.

A cooperative model

Colombo is in the midst of a three-phase expansion to grow its annual handling capacity by at least 7 million TEU — and likely more — through the development of its South Harbor terminals, collectively called Colombo International Container Terminals (CICT). The first of the three phases in the project, leased to terminal operator China Merchants, is operational, while a second phase — the East Container Terminal (ECT) — is partially built but not yet operational. Investors from Japan and India tied up an agreement in May with the Sri Lanka Ports Authority (SLPA) to build the remainder of ECT, with projected completion in 2020 or 2021.

The timing of the project is critical, speakers at the event said, as Colombo battles to win cargo from neighboring India and Bangladesh, instead of losing that transshipment cargo to Singapore or to direct calls at Indian ports.

“We need to transform Colombo from a regional maritime hub to a global logistics gateway to combat competition in the region,” Sagala Ratnayaka, Sri Lanka’s minister of ports and shipping, said at the conference. “We’ve developed a habit of waiting until demand occurs before we build to meet that demand. We have to shift our focus from demand-driven to supply-driven.”

Terminal operators at existing Colombo terminals said the port can continue to increase productivity at those facilities until ECT is completed to ensure the port is capturing that demand.

But developments in Hong Kong among competitive terminals that have worked together to smooth operational issues for shippers serve as both a warning and potential precedent for Colombo. Seven individual terminals in April formed the Hong Kong Seaport Alliance to cooperate on berth and yard operations, but also to collectively share revenue and profits in a bid to reverse the port’s declining volume.

Intense competition between the terminals, primarily controlled by operators Hutchison Ports and Modern Terminals, has resulted in operational headaches and service complications for carriers and shippers alike, with boxes arriving by barge or feeder into one terminal and needing to be loaded at another terminal for mainline service. The alliance essentially breaks the terminals into three gray zones to eliminate inter-terminal transfers and barges needing to call multiple terminals.

No time to waste

Colombo officials said its three terminals already have begun cooperating operationally to ensure carriers are served as quickly as possible.

“No one terminal in Colombo can handle the needs of a shipping line on its own,” said Ted Muttiah, chief commercial officer at Colombo’s South Asia Gateway Terminal (SAGT), a privately run terminal owned in part by ocean carriers Maersk Line and Evergreen. “So maybe we can identify a primary terminal and a secondary terminal for calls.”

Muttiah said the existing terminals have capacity for 9 to 9.5 million TEU, although each individual terminal has already surpassed its nominal design capacity. “ECT can’t come soon enough, because the need is for berths with deep-water draft, not standard draft,” he said. CICT terminals are deep enough to accommodate the largest vessels in operation today, while SAGT and the government-operated Jaya Container Terminal have shallower drafts. “But there is capacity today; there’s no need to panic.”

The impetus is clear, however, especially as port officials note that South Asia ports only handled 3.7 percent of global container volume in 2018, despite the region accounting for nearly a quarter of the world’s population. With India’s largest container port, the Jawaharlal Nehru Port Trust (No. 32), also seeing 7.2 percent growth in 2018, it’s clear that South Asia’s growth as an axis of container activity is hindered primarily by infrastructure limitations.

“If you’re going to compete in these markets, it’s important to understand what the market is doing, and what you’re offering to it, before the demand comes,” Beard said.

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.