News / Colombo transhipment traffic could shift to India, adding to Sri Lanka's woes

The disruption in Sri Lanka’s Colombo Port is proving a double-edged sword for an Indian container trade already navigating Covid-induced supply chain dysfunction.

According to a report by market researcher CRISIL, the crisis plaguing Colombo – the busiest intermediate port or transhipment hub for Indian cargo – could see some of the mainline services regularly calling shift to other ports in the region.

“Colombo is a major transhipment hub for south Asia, including India, because of its natural locational advantage and competitive pricing,” said the analyst. “But because of fuel shortages in the country, these services could be diverted to other ports, such as those in India.”

However, CRISIL noted that shortsea or feeder lines operating out of smaller Indian port locations to Colombo could face difficulty adjusting their capacity deployments in line with the constant mainline transhipment route changes. And that means landing Indian transhipment cargo, already hit by sailing disruption, in further disarray.

“Indian shipping companies, which carry cargo from smaller ports to Colombo, may see some impact because of change in sea routes of mainline operators to any other port,” it said. “To replicate this shift may not be cost-effective for some shipping companies and, hence, the impact would vary on a case-to-case basis.”

But CRISIL added: “Conversely, ports in India, particularly those on the eastern and southern coast, are expected to see some benefit from the diversion of transhipment and other shipping activities from Colombo.”

India’s east coast port corridor has long seen fewer long-haul direct connections, with available sailings lately caught up in frequent schedule dislocations.

If the latest fiscal year 2021-22 port data secured by The Loadstar is any indication, the tide has already begun turning for Indian ports sagging under growth pressure.

Chennai saw containership calls rise to 706 from 604 in fiscal 2020-21, while at Cochin, which hosts the country’s first fully-fledged hub facility, the number expanded to 615 from 563, year on year.  As a result, the share of transhipment handling at DP World Cochin hit 22% last fiscal year, up from 12.5% in 2020-21.

After a tumultuous 2021 due to Covid-driven disruption, Indian exporters and importers now have to contend with newer supply chain dynamics, and it remains to be seen how government/industry stakeholders at home work to take advantage of an “alternative hub opportunity” the Colombo crisis presents.

Sri Lanka is reeling under a deepening economic crisis, largely fuelled by the collapse of its mainstay tourism industry, on top of its perilously depleted foreign exchange reserves. The combined blow has seen the Sri Lankan rupee sharply depreciate against the US dollar, now hovering at around LKR325/$1.