Visakha Container Terminal (VCT) started operations in 2003. Sadly, despite the terminal enjoying good road-rail-sea and air connectivity, sluggish economic growth in the eastern coast of India held back the port from realising its true potential.
But there is hope that the recent spurt of industrial activity in the East Coast and the 'Act East Policy' of the government will rescue this underutilised asset of India.
Sisir Pradhan | September 2016 Issue | The Dollar Business
With recent visit to Visakha Container Terminal (VCT, set up under the aegis of Visakhapatnam Port Trust), The Dollar Business completed a full circle!
Visakhapatnam Port was the first stop in The Dollar Business' journey across Indian seaports that was started two and a half years back, with an intent to explore facilities and bottlenecks at Indian seaports from ground zero.
Since then, a lot has changed, both in terms of regional and national politics, and subsequently the trade outlook. While the previous Union government came up with the ‘Look East Policy’, the current government extended and enriched it with the ‘Act East Policy’. The government has also taken a step forward by initiating investments in CLMV countries – Cambodia, Laos, Myanmar and Vietnam – for greater access to markets in the ASEAN region (and their trade partners), and deeper penetration into the Chinese market by leveraging free trade agreements (FTA) between ASEAN nations and China.
On the regional front, the bifurcation of Andhra Pradesh and creation of a new state Telangana has put an end to a decade-long unrest and uncertainty in the minds of potential investors, regarding the fate of their existing and potential investment in the region. This bifurcation has been unpalatable to many, but it has certainly got back the attention of policymakers to economic activity. It is now anticipated that traffic will grow at the ports on East Coast, and VCT will have a pivotal role to play in the coming times.
The terminal was developed by Visakha Container Terminal Pvt. Ltd. (VCTPL), a joint venture between United Liner Agencies (a J. M. Baxi Group company) and Dubai-based DP World, under a 30-year BOT (build–operate–transfer) agreement with Visakhapatnam Port in 2002. The terminal was pressed into service in 2003. Well, getting an approval to visit VCT itself was indeed a surprise because its officials have always shied away from the media. But looks like mounting competition and impact of social media on business have prompted VCTPL officials to begin work to change general perceptions about the terminal.
Overlooking the historical Victoria Memorial Town Hall, VCT is located in Jalaripeta, a suburban area which was originally inhabited by fishing communities. Now the area is bustling with fisheries and export-import activities, quite alongside each other, only separated by a thick concrete wall. Once inside the terminal, you can see the coordination between man and machine, and it's quite mesmerising! In the recent years, VCT's safety and security measures have even prompted Indian Customs to certify VCT as an Authorised Economic Operator (AEO), a first among Indian ports, recognising the terminal’s trade facilitation measures and its efforts to enhance security and encourage best practice at all levels in international supply chain.
"VCT has a natural depth of 16.5 metre along the berth, one of the deepest in the country"
Geographic location plays a crucial role in the port business, and Visakhapatnam, which is located between Kolkata and Chennai, along the coast is primed to take advantage of these two major trading hubs.
Lest we forget, Andhra Pradesh has one of the highest concentrations of seaports in the country, which is largely complemented by rail and road connectivity. The port is located only 12 km away from the Golden Quadrilateral and has direct rail linkages to major industrial regions such as Jharsuguda and Kalinganagar in Odisha, Nagpur in Maharashtra and Raipur in Chhattisgarh, and inland container depots (ICDs) in Hyderabad and New Delhi.
Kolkata and Chennai are 882 km and 790 km away from it respectively. And in between, VCT is the only full-service container terminal with ship-to-shore cranes and other allied infrastructure. Well, there is a competitor in Chennai industrial cluster, but it lies 790 km away. Hence, VCT's dominance in container cargoes in the region is a no surprise.
In FY2016, it was the 6th busiest major port in India in terms of container volume (cargo in terms of TEUs) and the 4th busiest container terminal among other major ports on the East Coast, with only Chennai (1.56 million TEUs), Tuticorin (0.61 million TEUs) and Kolkata Dock (0.57 million TEUs) surpassing Visakhapatnam (0.29 million TEUs). But with that said, recently, the Singapore-headquartered PSA Singapore Terminals has started container handling operations at Kakinada. And being only 150-km away from Visakhapatnam, it is poised to give VCT some competition.
The Port town got its first rail headway back in the early 1900s. Subsequently, the city’s strategic importance was realised with the establishment of Eastern Naval Command, Scandia Shipyard, crude petroleum oil refinery, steel plant and a host of other heavy industries.
The Port city now has strategic sea-air-road-rail connectivity. And expansion of its existing two-lane to a four-lane road, connecting the Port to the Golden Quadrilateral (NH-16/NH-5), is in final stages of completion. Given Andhra Pradesh's concentrations of seaports and rail and road connectivity, ports and logistics have thrived in the state. In addition, terminal operators have extended railheads inside the terminal, which allows movement of containers directly to the vessel loading bay.
Just a few years ago, when India's landlocked neighbour Nepal scouted for an alternative to the congested Kolkata Dock, VCT due to its seamless road and rail connectivity was offered by the Indian government as the second gateway port. And now, there are plans to run container trains between VCT and Inland Clearance Depot (ICD) at Birgunj in Nepal. Container transport by road between the two ports is on.
VCT also offers connectivity to both east and west bound sectors through dedicated weekly mainline services. Except a direct service to Europe, VCT has a full basket of services connecting all other major global destinations directly.
Visakhapatnam’s inherent advantage has been its geographical location and the marine parameters that are one of the best in the sector. And being closest to the Strait of Malacca (a major shipping channel between the Indian Ocean and the Pacific Ocean) has helped the port augment its business.
Over the years, VCT has evolved into a transhipment hub connecting neighbourhood riverine ports through its direct services. With a vast hinterland covering eight states, within a radius of 750 km by rail and road network, VCT has been able to provide all necessary infrastructure for the trade to develop, thereby facilitating port-led development. There are however challenges that need to be addressed as VCT begins expansion of its terminal within the next two years. Presently the last mile road connectivity to the terminal is adequate and should sustain traffic growth for the next couple of years.
VCT, being a certified Authorised Economic Operator (AEO), is recognised worldwide as a safe, secure and compliant business partner in international trade – the recognition of AEO programme under Joint Customs Co-operation Agreements will result in faster movement of goods through Visakhapatnam. At the moment, the terminal’s average annual berth occupancy is about 60%.
Interestingly, the port is increasing its capacity to meet the requirements of future growth in cargo. It has signed a concession agreement with Visakhapatnam Port to extend its quay length, which will facilitate in adding another 0.54 million TEUs capacity to its existing annual container handling capacity of 0.7 million TEUs – VCT has plans to subsequently increase annual container handling capacity to 2 million TEUs.
The terminal has a natural depth of 16.5 metre along the berth, one of the deepest in the country. Further, the outer harbour of Visakhapatnam Port with an entrance channel of 20-metre deep, vessel turning circle (diameter) of 610 metre, and the terminal’s proximity to the pilot station (about 3.7 km), make VCT one of the most favoured (in infrastructure) container terminals in India.
All these factors contribute in eliminating the possible pre-berthing delays and help in extending the facility to customers at any given time. This is also made possible because the shipping lines have been provided with web access for updating container details and tracking containers. VCT has also implemented e-Form 13 (permission to transport hazardous waste) and has simplified the processes by providing e-EIR (a document transferring a container from one carrier to another or to/from a terminal), as well as access to real-time auto-generated container related data.
into the Future
The outlook for container traffic is really positive in India, especially in the East. Industrial growth in the hinterland is contributing to the growth of containerised traffic, both Exim and Coastal, in the region. This increase in container traffic has led to more container freight stations (CFS) coming up in the vicinity of VCT – these facilities are larger, better and more efficient.
Further, use of EDI (Electronic Data Interchange), RFID (Radio-frequency identification) tags and such other innovative measures have led to a paradigm shift in the functioning of container freight stations. Employment opportunities have increased leading to stronger domestic consumer demand, and VCT is successfully catering to this rising domestic demand for various goods.
Moreover, VCTPL’s investment to increase the terminal’s annual container handling capacity and set up a green field CFS (with an annual capacity of 1 lakh TEUs) means that the promoters are bullish about the growth in container traffic in the region. The CFS has also been declared as a Customs Area in June 2016. While container terminals at most major ports, including the ones at Jawaharlal Nehru Port (JNPT), are reeling under congestion and delays, VCTwith an average annual berth occupancy of about 60% does not face such bottlenecks. Even before attaining full capacity utilisation, VCTPL’s plans of expanding the terminal with two more berths, and adding 395-metre quay length to the existing berth, will help the terminal to remain congestion free in the near future.
Furthermore, the implementation of GST will mean reduction in transit time of consignments between the terminal and neighbouring states as check posts would become defunct. To add to this, Visakhapatnam Port’s decision to extend concession on vessel-related charges for container vessels, at different points in time, helps in attracting more shipping lines to the terminal. The efforts of stakeholders to promote containerised cargo traffic has borne fruit.
Notably, container cargo with an annual traffic of 5.145 million metric tonne (MMT) was the 4th major commodity, after POL (petroleum, oil & lubricants), coal and iron ore, handled at Visakhapatnam Port in FY2016.
Globally, container traffic is counted as the yardstick of economic activities and the growth in container traffic could be seen as something to cheer about for the port and shipping sector. While total container traffic at Chinese port rose 2.5% y-o-y in the January-June 2016 period (Alphaliner, a US-based research company specialising in shipping industry data), containerised cargo traffic on trade routes to the West Coast of US and on European routes is expected to rise 8% and 6% respectively in CY2016.
Even the heightened economic activity in India is contributing to the growth in containerised cargo traffic from/into the country. Notably, combined containerised cargo traffic (accounting for 20.3% of cargo handled) at all major ports grew at a rate of 3.1% in FY2016. This positive trend in container traffic is certainly going to benefit all efficient container handling ports including VCT.
While Andhra Pradesh government’s river linking projects is likely to boost farm output in the state, mining activities in the neighbouring state of Odisha has also started to grow after an unrest in the last couple of years. Since these two states are major markets for VCT, the terminal is bound to register growth in container traffic going forward.
From a strategic geographical location to the proximity to a commercially vibrant region, from being certified 'Authorised Economic Operator' to a state-of-the-art infrastructure, VCT today has all what it requires to reclaim its lost glory. Not only is the port authority investing a lot on improving the infrastructure further, but is also trying to bridge the existing gaps when it comes to communication. In fact, the port authority is going all out to woo back users, who had moved away from the port a few years ago in search of better options.
And they have been quite successful in their endeavours. A 17.5% y-o-y jump in containerised cargo traffic at VCT in FY2016 says it all!
Need we say more?
G. Sambasiva Rao Md, Sravan Shipping Services; Chairman, CFS Operators Association, Visakhapatnam
TDB: How has the container traffic growth at Visakhapatnam been and how much of it is influenced by prevailing global economic scenario?
G. Sambasiva Rao (GSR): Container cargo has been stagnant for the last couple of years in this region – there has been a very marginal growth in container traffic. We can relate stagnancy, to an extent, to the slowdown in overall global trade and economy.
Even the banking system in India is in trouble which is also affecting financing for trade and infrastructure. The decisions taken by the Union government are also not going in the right direction. Now the government has come up with a new norm on non-performing assets (NPAs), according to which default in repayment for two or three months is treated as a bad loan and is declared NPA.
In EXIM trade, if one trade cycle goes wrong, a trader takes about 1-2 years time to recover from the loss. In such a scenario, it becomes very difficult for the trader to repay the loan in a short span. The government should give at least six months time to a trader to repay the loan before declaring it a NPA. In fact, all aspects of the prevailing economic and industrial scenario should be taken into consideration before taking such a step.
Further, there should be clarity and transparency in the law to make ease of doing business a reality. Trade needs clarity on taxation and policy while taking long-term investment decisions. Moreover, the rate of interest on loans in developed economies like Japan is about 2-4% and in US is about 6%, but in India it's about 12-13%. This massive difference in the rate of interest itself puts Indian industry at a disadvantage, even before they bring their goods to the market. These are some of the major issues that are holding back trade from attaining its full potential.
TDB: Visakhapatnam has good sea-air-road-rail connectivity and a significant number of heavy industries. But why has the region not noticed any development of industrial clusters alike Chennai, which is now a hub for auto and engineering?
GSR: During pre-bifurcation era, all policymakers were based out of Hyderabad. Hence, they focussed more on the development of the city and its nearby areas. Other parts of the state were ignored. After the bifurcation of Andhra Pradesh, the new coastal state has a fund deficiency. The state government is dependent on the Union government for allocation of funds, but they are not coming in a gradual and steady manner.
Recently, industry representatives have approached the new state government with a suggestion to group all districts in the state into three regions and initiate efforts to attract investment in each region based on the region’s advantages. There is definitely a great scope for Visakhapatnam and Krishnapatnam to grow as major industrial hubs since both these places have good international air and sea connectivity.
TDB: Can you please elaborate on the expansion plans of Sravan Shipping Services?
GSR: We are planning to commission our second container freight station (CFS) later this year at Visakhapatnam Port and another CFS is planned to be put into operation in March 2017 at Krishnapatnam Port. We also plan to execute an SEZ-cum-Free Trade and Warehouse Zone (FTWZ) and a logistics park at Visakhapatnam. We are hopeful that it will be operational in a year’s time.
TDB: Krishnapatnam Port authorities control all operational aspects of the Port. Will that be an issue with regard to your CFS operation there?
GSR: Being a private port, it controls everything there. But they are eager to outsource CFS activities to third party developers. Operating in a private port is not easy. But if we compare Krishnapatnam Port with some other private ports, Krishnapatnam Port has a broader vision. Their core competency is in terminal operations. Hence, they have to allow market forces to take care of other aspects of the trade. People who are into CFS operation have the competency to attract cargo to the CFS.
TDB: Visakha Container Terminal (VCT) started operations quite some time back, but it has not taken off the way it should have. According to reports, VCT currently has a capacity utilisation rate of just 50%. What, according to you, are the issues with the terminal?
GSR: The J.M.Baxi & Co. operated Visakha Container Terminal (VCT) has a conservative management. The strategies pursued by the management are also not very aggressive in nature. The traffic that the Port had projected is also not available in reality. VCT is now planning to build a third container berth even though there is not enough traffic for the existing two berths.
While the government is encouraging people to invest in infrastructure expansion including ports, we need to understand that such projects take a considerable amount of time to become profitable. But unfortunately, banks are not ready to finance on a long-term basis. The trouble that Indian banks are facing is because of the mismatch in revenue generation in comparison to loan repayment schedule. Be it J.M.Baxi & Co., or any other investor, the moment an entrepreneur takes a loan to invest in a project, the bank will run after them for repayment. They will not take into consideration the time required for an infrastructure project to breakeven and make money.
Indian government needs to arrange a financing scheme like Japan. In international shipping, the kind of lending rates and repayment schedule that is provided by Japanese banks has to be made available to Indian entrepreneurs who are into Port infrastructure projects. It will allow them to reduce tariff related to facility usage, which will eventually benefit port users.
The containerised cargo volume in this region has not increased as expected. Moreover, the number of CFS has gone up significantly – Balmer Lawrie is coming up with a new CFS spread over about 50 acres. CONCOR is also developing a CFS. VCT is setting one CFS. Sical is coming up with their own facility. Then the Sattva Group is also developing a CFS. Well, we are all expanding. This will lead to cut-throat competition among all CFS operators and will eventually put pressure on the bottomlines of CFS operators.
While VCT is expanding its terminal capacity, industrial growth has been stagnant in the region. Though the government expects Visakhapatnam Port to handle 200 million tonne of cargo every year by 2020, other ports in the vicinity are also ramping up their capacity. This means cargo coming to VCT is bound to get divided among ports in the region. Further, there is a stark contrast between the cargo forecasted by the government and the actual available cargo.
VCT has recently started aggressively marketing itself, which is good. But they need to encourage trade as well, only then things will moving in the right direction. All stakeholders need to work as a team for the prosperity of EXIM trade in the region. VCT should focus more on promoting the terminal, which is their core competency, rather than diversifying into the CFS business.
TDB: How do you plan to take on competition? What are the major products being traded through VCT?
GSR: We have some advantages over competition as our group provides end-to-end logistics solutions. We can provide our clients customised service and tariff. Having said that, as long as we take care of our client and ensure them a conducive business environment, they will continue doing business with us. Currently, we have clients from Andhra Pradesh, Telangana, Odisha, Chhattisgarh and even Nepal.
Some of the major import commodities at Visakhapatnam are waste paper, fruit pulp, machinery, chemicals, house-hold items, furniture, etc. On the other hand, major export products from Visakhapatnam are alumina powder, aluminium ingots, ferro-chrome, seafood, food and agri commodities like rice. When it comes to agri commodities, trade depends on the demand and supply scenario in international and domestic markets. For instance, maize was being exported through this Port a year ago, but now it is being imported.