Cochin Port – Shipping in troubled waters March 2018 issue

The Kochi International Container Transhipment Terminal, locally known as the Vallarpadam Terminal, is a container trans-shipment facility which is part of the Cochin Port Trust

Cochin Port – Shipping in troubled waters

The aroma and flavour of its spices have drawn traders from across the seas to Kerala. Its tradition and history can never be complete without anecdotes of seafarers converging to this destination for the precious and delicious cooking ingredients. Cochin Port, harboured on the man-made marvel – Willingdon Island – was envisioned to cater to this flourishing trade at that point in time. Until recently, it has lived up to the expectations of its users and basked in its glory. However, despite Vallarpadam ICTT and the proposed outer harbour coming into the scene, it is slowly being consigned to history. Or, is there still hope for restoring lost memories?

Satyapal Menon | The Dollar Business

The ride from the Kochi airport to Fort Kochi was quite pleasant, but it did erase whatever little sense of nostalgia I had of revisiting the state after so many decades. There was a lot of difference between recall and the view that unfolded. Vast stretches of countryside, dotted by shacks, displaying famed Kerala bananas, have completely disappeared from the landscape. Back waters and lagoons seems to have disappeared into concrete jungles. But my destination, Fort Cochin, with its old buildings still standing sturdy and majestic, did create a pervasive sense of history. My cab driver Joby was a well-informed guy and he gave me a run down on the decline and the imminent fall of Cochin Port. “It was a sellout and the fallout is quite evident from the total stagnancy of both Cochin Port and Vallarpadam ICTT,” he said. It was the voice of the Vox Populi.

Ignoring history

Cochin Port and Willingdon Island – where it is located – have their moorings engineered through a fascinating and amazing endeavour. It was born out of a necessity, and also astute vision. The then Governor of Madras, Lord Willingdon conceived the idea of creating a modern port to harbour the ships that would come calling following the opening of Suez Canal and the consequent passage of vessels in the vicinity of the West Coast. His concept was translated into reality by British engineer Sir Robert Bristow, who first studied the dynamics of sea currents, tidal patterns and siltation before designing and finally constructing the island – a feat perhaps unparallelled in many years to come. LNG-Petronet-TheDollarBusinessThis was in the year 1926. Today, almost nine decades down the line, the once busy and buzzing port on Willingdon Island is near cessation of operations, with the facilities being leased out to cement manufacturing majors like Ambuja Cement and Ultratech. Apart from this, only bulk imports and exports are happening from here. The entire port activity has shifted to International Transshipment Container Terminal (ICTT) at Vallarpadam. Developed in public-private partnership (PPP) mode with Dubai Ports World, the terminal was envisaged to harbour mother vessels and facilitate transshipment. But, that has not been the case, if one goes by its track record since it started operations in 2011. The reason – a lack of foresight and insight, coupled with the fact that it was established without appropriate studies and surveys about the topographical vagaries that the location experienced. The point here is that while several in-depth studies and efforts had gone into the construction of the original Cochin Port, in this case there were none. The fault lines are conspicuous, isn’t it?

The LNG Petronet is functioning at 2% of its available capacity

Promises galore

Vallarpadam ICTT was designed keeping in perspective the present and futuristic demand for transshipments. But it has failed to gauge existent ground realities. If the objective was to stop Indian ships from heading to Colombo for transshipment, it has, till date, failed to materialise. Even today, containers from India are taken in smaller vessels and offloaded to bigger vessels in Colombo, Singapore and Dubai. Colombo is the biggest transshipment hub for Indian containers with around 60% share, with Singapore at 30% and Dubai at 10%. One justification often flaunted by the developers of ICTT and Cochin Port Trust authorities was that Cochin had the advantage of being positioned at a strategic location from the international sea routes – only about 76 nautical miles from the Suez Route – when compared to other ports in the country like Mumbai and Chennai, which are much further away. The passage of traffic between Asia and Africa, Europe and America is via waters within Indian jurisdiction. Kochi is located just 11 nautical miles from the Middle-East trade route. When considered from this point of view, the objective and intent in establishing the ICTT could be credited with being judicious.  

"Almost all of CPT’s activities have now shifted to ICTT Vallarpadam"

In line with times

According to the modalities of the agreement between Cochin Port Trust (CPT) and Dubai Ports World (Distribution of vessels at Cochin Port-The Dollar BusinessDPW), the ICTT was developed on the build, operate and transfer (BOT) model. Dubai Ports World was entrusted with the task of constructing, developing and operating it, while Cochin Port Trust was vested with the responsibility of providing the land, infrastructure like road and rail connectivity and maintaining the required depth for berthing mother vessels. Cochin Port’s share in the revenue from operations at ICTT is 33%. Dubai Ports World will be involved in managing the operations, apart from marketing for 30 years, after which the ICTT will be handed over to Cochin Port Trust. Initially, during the launch of operations by ICTT in 2011, there was immense optimism about its potential. The terminal was to be developed in three phases at an estimated cost of Rs.3,200 crore. The first phase, which has completed, has the capacity to handle 1 million TEU (twenty-foot equivalent unit) with the capability to be enhanced to 3 million TEU and 5.5 TEU in the second and third phases respectively. In fact, ICTT Vallarpadam is the only port in the country accorded Special Economic Zone (SEZ) status. As a result, it is exempted from all duties normally levied on imports. This has enabled the promoters to save considerable amounts through exemptions on import of capital goods and equipment for establishing the ICTT. The SEZ provision also exempts the ICTT from customs and excise clearances.  

White elephant

Dr. Manmohan Singh, the then Prime Minister, while inaugurating the ICTT had described it as a milestone in logistic infrastructure development. But what followed in the years to come has proved to be problems replete with negative consequences. To begin with, one of the biggest ship liners MV Maersk Sembawang had come calling. To cut the story short – well, it was precisely that – this was also the first and the last such big vessel arriving at the ICTT. “Resorting to dredging was a blunder and the biggest mistake. No surveys were carried out to find out whether this port is capable of accommodating mother vessels. No mother ships are coming here. Only in the beginning, a few mother ships came. Now only feeder vessels from Colombo Port are coming here. That was happening comfortably at Cochin Port also. Everybody was also happy with the Cochin Port,” Antony Kottaram, Convenor, EXIM Forum, Kerala Chamber of Commerce and Industry told The Dollar Business.

The terminal has not lived up to the perceived expectations which subsequently ran aground since the projections were so full of loopholes that it failed to hold water. First and foremost was the inability of the terminal to accommodate large cargo vessels due to chronic siltation. At present, very little business is happening at the ICTT, with the terminal functioning at 35% of its capacity. On the contrary, it has proved to be a drain on Cochin Port’s exchequer – which is already cash strapped and in the depths with huge debts – running to the tune of over Rs.700 crore, to be repaid. CPT-TheDollarBusinessThe port has been pouring around Rs.60 crore annually for dredging operations at the ICTT and the total investment by the government is around Rs.1,700 crore. According to CPT’s own calculations, the estimated net loss during FY2015 would be up in excess of Rs.120 crore and given the present scenario, the losses might as well increase to Rs.180 crore during FY2016. Strangely, DPW has also been handed over – in what can be only be viewed as a bonus as if to acknowledge the value of its partnership – of handling operations at Rajiv Gandhi Terminal at Cochin Port. And this comes, with a stake in the revenues attached, till the time ICTT is fully commissioned. The despondency is quite evident and Chairman, Cochin Port Trust, Paul Antony admitted to The Dollar Business that it was going through a difficult time. “In the case of the ICTT, if it works at 1 million TEU, the port stands to get Rs.185 crore revenue per annum. Well, the issue currently is they are not, and, because of that we are facing a severe strain on finances of the port. As far as Cochin Port is concerned we are going through a bad phase.”

According to CPT’s own calculations, the estimated net loss during FY2015 would be up in excess of Rs.120 crore. Given the present scenario, the losses are expected to rise to Rs.180 crore during FY2016, putting serious question marks over its future

"ICTT Vallarpadam is the only port in India that has been accorded SEZ status"

In a trough

A study of the container traffic statistics since the inception of the ICTT, does not reflect any significant indicators at the performance level. The number of containers handled at the port in FY2012 was 390, in FY2013 was 439 and in FY2014 was 501, with TEUs at 3.46 lakh, 3.34 lakh and 3.37 lakh respectively. The number of vessels carrying fertilisers and raw materials in the dry bulk segment, which is mainly handled at the Cochin Port, also experienced a decline during the same period, while other products in this segment witnessed a miniscule rise. General cargo vessels traffic dipped from 45 in FY2010 to 39 in FY2011, 37 in FY2012, 24 in FY2013. But FY2014 witnessed a positive turnaround with the number of vessels increasing by 17 to 41. According to Cochin Port Trust figures (on its overall operations during FY2014), the cargo traffic including liquid bulk was 20.96 MMT. The average pre-berthing time during the year was 23.18 hours and the average turnaround time was 1.76 days. The idle time, according to the figures, was 26%. Already at sea with performance and struggling to stay afloat amidst the troughs, DP World seems to have a propensity to self-destruct by hiking the TAMP charges on container handling services. The result – the EXIM community, not only here in Kerala but also in neighboring Tamil Nadu, is seriously contemplating to shift their activities to Tuticorin Port in Tamil Nadu. “There is a possibility that many of the exporters, especially those from Coimbatore, may go to Tuticorin because of the high rates here,” A. S. Rajan, Secretary, Kerala Chamber of Commerce and Industry told The Dollar Business.  

"A large section of the local Exim community is already planning to shift to Tuticorin Port"

A. J. Tharakan, President, Seafood Exporters Association of India, and Chairman, Amalgam Foods Ltd., attributes the high charges to high costs involved in dredging. “The costs here is the result of the expenses borne by the port for dredging activities. Apart from this, the port is also running in losses. In my opinion, the dredging costs should be paid from the Consolidated Fund of India, so that the port can make up the losses and also offer competitive rates for the services. This will enable the port to not only compete with Colombo, where the prices are lower, but also increase efficiency of the services,” he told The Dollar Business. On the question of exporters opting for Tuticorin Port, he replied, “It could be the case with exporters of other products but not seafood exporters, since we have all the facilities here.” There was high anticipation when the ICTT was awarded to Dubai Ports World. First, because of its track record and reputation as one of the best port developers in the world. Second, it had a brand image that would enable it to rope in big liners. Although the ICTT, in terms of design and construction, did meet the expectations, Dubai Ports World was unable to meet its part of the commitment in bringing in the big time ship liners.


Boon or bane

Things-at-Cochin-Port-TheDollarBusinessWhile Vallarpadam ICTT is struggling to survive and proving to be more of a bane than a boon to Cochin Port Trust, LNG Petronet located at Vypeen Island here, is also in doldrums with only about 2% capacity utilisation. Moreover, the project has been stopped mid-flow as there are issues – Tamil Nadu government has refused to give permission to lay the pipeline through its terrain. Perhaps to revive its dwindling fortunes, Cochin Port Trust is planning some more ventures out at the sea, like the Cochin Outer Harbor Project and the Multi User Liquid Terminal (MULT). Meanwhile, Vallarpadam ICTT is likely to encounter stiff competition from another transshipment hub for containers proposed to come up at Vizhinjam in Trivandrum. The project, to be established by the state government, has already been cleared by the Centre. One advantage Vizhinjam will have over the ICTT, apart from its proximity to the international route, is that it would have the capacity to harbour deep sea vessels.

Things at Cochin Port are only getting worse as ambition and ground realities seem to be in clear conflict at this major port

"In terms of being able to attract major ship liners, DP World has seriously failed ICTT Vallarpadam"

Traffic handled by Cochin Port-TheDollarBusiness

What next?

After my many e-mails and phone calls for an interview with K. K. Krishnadas, Director and CEO, DPW were stonewalled, I visited Vallarpadam ICTT and met him personally. Krishnadas was profuse in apologies for not being empowered to speak to the media. The silence was quite eloquent and even deafening as evidenced by the sparse activity pervasive at the ICTT, in contrast to the busy and noisy movements of containers observed at other such terminals. But we still feel that Vallarpadam ICTT, in God’s own country, could definitely do well if the authorities wake up to the alarm bells. Of course, before it’s too late!


“DP World has yet to rope in big shipping liners” - Paul Antony, Chairman, Cochin Port Trust
Paul-Anthony-TDB Paul Antony, Chairman, Cochin Port Trust
TDB: Cochin Port Trust is sitting on a pile of liabilities, losses and under performance. What do you attribute this situation to?
Paul Antony (PA): Basically, when we talk of Cochin Port we have two major projects that we have implemented, but they have not yet stabilised. I am referring to the ICTT and LNG Petronet. Anyway, the issue is that even at 1 million TEU, we are operating at less than 35% capacity utilisation. The second major project, where we berthed the first ship in August 2013, was the LNG Terminal which has 5 MT per annum capacity. It is presently functioning at 1.6 MT capacity utilisation. Both these projects have immense potential, not only for the state, but also the country as a whole. For, when the LNG pipeline would be running at 5 MT capacity utilisation, it would fetching the port about Rs.75 crore in revenue.
TDB: What factors have contributed to this situation? Is it lack of capability and commitment to perform?
PA: In case of the LNG terminal, the pipeline (to link up to the National Grid) is not being laid because of problems in getting land, both in both Kerala and Tamil Nadu. Out of a total of 879 km, only 50 km of pipeline has been laid. The Vallarpadam ICTT was set up as a grandiose project and GoI has invested something like Rs.1,700 crore on it. There was a grand design behind the entire project. That vision has, unfortunately, not fructified because of varying issues. We do have a good partner in DP world. Remember, it runs 68 terminals all over the world. It has huge marketing muscle. So, we have no issues there. But then, despite this, the project does not seem to have taken off, the reason being DP World is in charge of the marketing, but it has not been able to rope in big players like Maersk, or any of the big lines. One big line and the breakthrough will come.
TDB: In the four years the ICTT has been in operation, performance levels have not been quite encouraging. What’s the reason?
PA: Remember, of all the container terminals in India, ICTT is the only terminal which has transshipment in its title. So, this is a major business. It is not looking at or is not supposed to be dependent on the immediate hinterland of Kerala. Its main task is getting and consolidating all the cargo from all the ports in the region, consolidate it here through cost-effective measures, and have sizeable cargo for the mainline or mother vessels going along the international transshipment line routes. Initially, when we started off in 2011, we did not have sufficient capacity under the Indian flag. This is why the Shipping Ministry gave us cabotage waiver. We were expecting foreign liners to do the feeding at the terminal. But unfortunately, till now we have not been able to get many of these foreign feeders to come in.  

"Of all container terminals in India, only ICTT has transshipment in its title"

TDB: Dredging has proved to be a huge drain on the exchequer and reportedly, no studies were done about the natural hazards before deciding on launching the ICTT, which originally required mother vessels for operations. What’s your take on this?
PA: Siltation is a geo-morphological disadvantage we have here. We have like-literal drift phenomena at Cochin coast, where there is a pre-dominantly north to south movement of material in the seas and occasionally, and also in the reverse direction. Another factor is that in India, most ports are hard rocky bottom ports. Dredging is quite expensive for these ports, since it involves rock blasting. But once that is done, no further investment is required. In order to protect the hull of ships coming in, we need to maintain a 10% under keel clearance (UKC), which is why when we are supposed to maintain 14.5 metre draft, we actually need to keep 15.95 metre draft. We have managed to get Ministry of Shipping sanction to map out and identify areas, where we can cut down on dredging. This is going to be an 18 month study and when this is done, we can reduce the siltation extraction quantity from 21 million CBM to about 30% of that. This will also help us to plan our dredging operations in a much better way.
TDB: Won’t your proposed Outer Cochin Harbour Project not encounter similar problems?
PA: Outer Cochin Harbour is a project that has the potential to change the fortunes of Cochin Port comprehensively. We have completed the feasibility studies and have called an EOI for the development of the northern breakwater and reclaiming the adjoining 2,600 acres of land for locating a oil refinery or a liquid trading hub. The Indian Navy has expressed interest in co-partnering the project and taking up the southern breakwater and developments thereon. The breakwaters will reduce the siltation load in Cochin Port channels by 40% and reduce the worryingly high maintenance dredging expenditure of the port.


“Conflict between the Customs Act and SEZ Act creates a lot of confusion” - Dr. K. N. Raghavan, Commissioner of Customs, Cochin
K-N-Raghavan-TDB Dr. K. N. Raghavan, Commissioner of Customs, cochin
TDB: Tell us about the initiatives taken by you to ensure faster clearances at Cochin?
K. N. Raghavan (KNR): We have introduced management systems that enable stakeholders to have direct access. All they have to do is pay the duty, submit the documents and within 15 minutes, clearances are done. Secondly, whenever there is any difficulty at any level, we ensure it is attended to immediately. We are living in an age where barriers between the department and trade have dissolved. In the case of imports, after a document which is in order is filed, 95% gets cleared within two working days. Our E-billing or online payment process also brings down the time taken for clearances.
TDB: Since Vallarpadam ICTT has been accorded SEZ status, what is Customs’ role at this terminal?
KNR: In the case of ICTT, legal friction happens to be a real time boundary and it has created a lot of confusion. The SEZ Act and The Customs Act are all entangled because the former states that the latter does not apply here. This is true, and this is what an SEZ is supposed to be. But then, Customs Act also states that we have to monitor the borders and when a ship comes in we have to perform certain tasks. These aspects have created some problems. First and foremost, we have streamlined some procedures to ensure that we have a practical system. Secondly, we have to ensure the procedures are brought on par with what is happening at other ports in India.
TDB: Could you elucidate on the reasons that made you allow some leeway and flexibility for bunkering services?
KNR: Bunkering is a potential revenue generator. We have been given the powers to streamline the process at my level. Earlier, the procedures were causing lots of delays, because multiple clearances were required at multiple levels. So, we have created a single window where a person gets the clearances. This ensures that concerned officials escort the person to the outer sea and supervise the discharge of the bunkers. These are some measures that have been taken by us to facilitate faster clearances for bunkering.
TDB: What other measures have been taken by you to ensure smooth and stakeholder-friendly functioning?
KNR: When I took over, there were large numbers of old cases related to drawbacks. We have taken up the challenge of clearing all pending cases. We took out the list of all cases and wrote to the exporters, giving them details of drawbacks due to them. There was a huge response with many not even aware of the fact that drawbacks were payable to them. We also decided that drawbacks would be paid within seven days. Normally, we have a monthly monitoring mechanism. Last month, we cleared 75% of the total drawback dues within seven days of filing. Getting the money immediately makes a difference to a stakeholder, since it augments the turnover. Refunds are also being paid at a faster pace. If documents related to refunds have no deficiencies, the amount is credited within 90 days. We have done away with cheques, since they used to cause delays.  

"We have taken up the challenge to clear all pending drawback related cases"

TDB: What kind of cooperation do you seek from stakeholders?
KNR: The role of Customs is to facilitate trade and the enforcement of laws related to Customs and allied aspects. My performance is based on clearances; on how long it takes to clear goods; at what speed I can clear. On the enforcement side, we know the mandate. But on the facilitation side, we need the active cooperation of exporters. With proper coordination between all stake holders, we can bring down both the dwell time for exporters and also transaction costs.


“We are being forced to spend more due to ICTT Vallarpadam” - Antony Kottaram, Convener, EXIM Forum, Kerala chamber of commerce
Antony-Kottaram-TDB Antony Kottaram, Convener, EXIM Forum, Kerala Chamber of Commerce
TDB: Has the local trading community in Kerala benefited from Vallarpadum ICTT?
Antony Kottaram (AK): Absolutely not! We had lots of hopes and expectations from the ICTT. On the contrary, it has only burdened traders with higher TAMP rates on containers. They are charging at the maximum limit. For instance, if most other ports are charging $70 or $80 or $90, ICTT is charging $100. The government has fixed a maximum or a ceiling on tariff. But while other ports are fixing rates much lower than the upper limit, ICTT is charging at the maximum limit. ICTT authorities are trying to justify the rates by comparing them with that of Colombo and Singapore. That is not our concern. We have demanded that rates be reduced to those comparable at nearby ports. Because of the high rates, many exporters are planning to shift their activities to Tuticorin Port. For us, the size of the port is immaterial. I suggest port authorities and trade bodies should constitute a committee and this committee should have the right to fix the TAMP. It should be on par with the nearby ports. At Vallarpadum, it is fixed by DP World. I have a feeling, the objective of DP World is to make maximum profit within the stipulated BOT time of thirty years. But ultimately who is suffering? Cochin Port is suffering and the trading community is suffering.
TDB: Apart from the issue of rates, has the shifting of activities from Cochin Port to ICTT impacted the trading community in any other way?
AK: Cochin Port was functioning quite smoothly. We had the facility to get offloaded containers examined there itself. But in the case of ICTT, the Customs department has implemented a rule called en bloc movement. According to this, a container coming in a ship, should be removed from the port within three or four days and transported to the nearest CFS. It will cost us an extra Rs.3,000 to Rs.4,000 for transporting the cargo from here to the CFS. You can understand this when there is not enough space, which is the case with other ports. But ICTT has space and it is presently utilising only 30% of what it has. 70% is still vacant, which should be used to accommodate containers. Why are they not allowing the Customs to examine the containers at ICTT and facilitate us to take delivery at the port itself, so that a minimum of Rs.5,000 can be saved?
TDB: So, do you mean to say the ICTT is a bane rather than a boon to the trading community?
AK: When the then Prime Minister Dr. Manmohan Singh inaugurated the terminal, he had said it would help exporters and importers benefit $200 to $400 per container. On the contrary, we are forced to spend an extra amount equal to that. In the case of Cochin Port, it was a $1,000 activity, now it is a $1,200 activity. This is the benefit we are getting from the ICTT!
TDB: What do you think are the other problems that the local trading community encounters?
AK: In Kerala, there are a lot of technical and trade union issues, especially at the port. If there is a strike at the port or Dubai Ports World, for at least a week, nobody is responsible for addressing the issue. In the process, we incur demurrage charges for our cargo. We have suggested that a CEO, vested exclusively to deal and address such issues, should be in place. He should also be made answerable and accountable for issues related to strikes and technical problems.