Why Tamil Nadu's Enayam port is the need of the hour

Ever since the Union government anchored a Rs 27,000 crore container transshipment project at Enayam – a hamlet on the west coast of Tamil Nadu – it has drawn a mixed response. The objective to build the port is to get a share in the global transshipment pie by attracting mother ships carrying cargo meant for India that now dock at Colombo or Singapore or Port Klang in Malaysia. 

In terms of sheer volumes, about 2.8 million TEU (Twenty feet equivalent Unit – it is the standard size of a container and a common measure of capacity in the container business) of Indian containers are currently being transshipped through foreign ports: Colombo Port handles 1.2 million TEU and the rest is through the Port of Singapore and Port Klang. And the transshipment loss for the Indian port industry can be pegged at Rs 1,500 crore. 

High potential

That is where Enayam comes into the picture. It’s a port that has the potential to offset the loss of Rs 350 crore through the cost of logistics and make a Rs 5,000 crore indirect positive impact on the economy. Further, it can save voyage time by 5-6 days for cargo bound to Africa, the EU or East. Leveraging the proximity to the great East-West shipping route, Enayam has the potential to become a transshipment hub not only to handle Indian containers but also cargo flows in South Asia – West bound containers to Europe, Africa and the US – from the neighbouring countries like Bangladesh, Myanmar, etc. 

Yet there is opposition to the project and it is basically two-pronged: one revolves around its viability and the other is on the possible impact on the livelihood of the 10,000-odd fishermen living there. Let us first look at the feasibility angle. Critics harp on the proximity of the Enayam project to Vizhinjam port in Kerala, which is just 40 km away and is being developed with the same objective. Why two ports in the same area doing the same business, they argue. Actually Colombo, Vizhinjam and Vallarpadam International Container Transshipment Terminal (ICTT) exist in close proximity, creating excess capacity in the region.

Proximity factor

But should proximity be a problem? Look at the global experience: successful transshipment and container hubs tend to develop in clusters. The Klang and Tanjung Pelepas ports in Malaysia and Singapore are part of the South East Asia cluster and handle as much as 60 million TEUs. Similarly, the Jebel Ali, Salalah and King Abdulla ports are located close by in the West Asia cluster and handle over 40 million TEUs. Even in India, the port cluster of Mundra, Kandla, Hazira, Pipavav in Gujarat in the west and those in Chennai, Ennore, Kattupalli and Krishnapatnam in the south are successful examples of such large port ecosystems. Ports in Los Angeles and Long Beach in California perhaps serve as the best example of a large port cluster ecosystem. If these clusters can work, why can’t Enayam and Vizhinjam?

In fact, container trade has been growing at a rate of 7-10% worldwide over the last two decades and India’s position is robust. The country needs to set up more ports to meet its growing cargo traffic, which is expected to touch 2.5 billion tonnes by 2025, from its present capacity of around 1.5 billion tonnes. Moreover, India has emerged as the fastest growing major economy in the world and the Indian economy is expected to continue to grow at more than 7 per cent in 2016-17. Establishing the Enayam Port will help inclusive growth in the region.

Why ICTT failed

Then there is the argument that the Vallarpadam ICTT – created for the same purpose in February 2011 – has not been able to compete with Colombo, which has always been way ahead of Vallarpadam in terms of capacity, deep draft (16m), pricing and productivity. The ICTT has 13.5 m draft and is about 30 nautical miles away – twice as much as Colombo – from the International Shipping Route, requires extra sailing time and consequent doubling of deviation cost, which detracts major shipping lines. Besides, its high maintenance cost limits the scope for further expansion.

But more importantly, ICTT follows a rigid tariff structure fixed by the Tariff Authority for Major Ports (TAMP) amid high labour cost, whereas Sri Lanka follows guided tariff that has not changed dramatically for the last two decades, thus assuring constancy of business. 

But TAMP, created in April 1997 to provide a level playing field between the private operators and the major ports, became redundant ever since the market matured. Now the ministry is considering doing away with TAMP and moving towards a market based tariff determination system. 

One of the strengths of Colombo is that it has a strong feeder system with smaller ships in the range of 800-1,000 TEUs moving transshipment containers to/from Colombo port. Currently, the Colombo port is considered as the best option in the South Asian Zone, which is why apart from India, Colombo receives cargo from Pakistan, West Asia and Myanmar. In fact, the volume of cargo handled at Colombo is rising around 10% every year despite the shipping industry failing to recover from the global slowdown. No wonder, Sri Lanka is strategically creating new port capacities in Colombo (14 mn TEUs) and Hambantota (20 mn TEUs) to get a bigger slice of the South Asian cargo, since a considerable chunk, i.e., 70% of cargo from Bangladesh and Myanmar – at present gets transshipped in Singapore.

Enayam advantage

Compare ICTT with Enayam. At Enayam, there is a natural draft of 16 m, which will enable larger vessels to call in. In fact, even Colombo has only one terminal (CICT) with the draft of 16 m. Enayam would need minimal dredging for maintenance thus offering a cost edge. Its 4 km long container terminals would provide sufficient scale to handle more than 8 million TEUs. 

Add to that its strategic location almost next to International Shipping Route (around 10 nautical miles) and the potential for gateway cargo would be a big factor in any liner’s decision to move to a new location since it brings down the volume risk. Further, Enayam would have a multi-cargo approach that would reduce the commercial risk profile. And IPRCL would be tasked to provide the last mile rail connectivity with the closest railway station at Pallivadi, which is only 10 km away and six-lane road connectivity with NH-47, which is only 11 km from the port. 

Must-have factors

Consultants to the project had suggested five ‘must have’ factors for Enayam’s success. The first two factors, namely, ease of cabotage rule and waiver of service tax or extending the discount in port charges to offset the additional cost of service tax are within the ambit of the Ministry of Shipping. 

The third factor was simplifying customs procedures. In fact, the DG (S) Committee has made 34 recommendations to reduce the waiting time of coastal ships at ports. Customs have implemented some of the recommendations relating to inter-modal transportation of transshipped cargo, simplification of coastal cargo transportation etc. 

The Ministry of Shipping and CBEC are actively examining ways to implement the remaining recommendations. The Indian Customs may not have transformed into what we find at the HOROPA Port in Europe, wherein rapid customs clearance happens, in less than five minutes. But the recent measures such as AEO, DPD services, single-window interface for trade (SWIFT), RFID programme and the export and import computerisation module of ICEGATE, have brought in sea changes.

(The author is Director (Finance), Ministry of Shipping. Views expressed are personal)