DP World wins Jawaharlal terminal contract in a step forward for India

© Khunaspix Dreamstime.

India’s largest container gateway, Jawaharlal Port, has sent a letter of award to terminal operator DP World giving it permission to construct a new terminal, thus hoping to ease some of the chronic congestion that has plagued it for a number of years.

Whether it will have a material effect or not remains to be seen. Certainly not in the short term due to the long lead times required to bring new terminal capacity into operation. DP World subcontinent managing director Anil Singh told The Loadstar that the next step would see the operator accepting the port authority’s letter and then signing a concession agreement – which at the moment is expected to be for a 17-year period.

A two-year construction period would likely follow, delivering in 2015 a new 330-meter quay, backed up by a 17ha yard area capable of handling 800,000teu per year.

The site for the new terminal is adjacent to DP World’s existing Nhava Sheva International Container Terminal (NSICT, the first private box facility in the country when P&O Ports opened it in 1997), although Mr Singh said that under Indian public-private partnership rules it will technically have to be operated as a separate entity.

However, the fact that the existing NSICT facility is connected to India’s vast rail freight network and its range of inland container depots meant awarding the concession to DP World “made a lot of sense”.

In fact, any addition of capacity to the port makes sense because it has become routinely overused. For the past few years the port – which comprises a port authority-run facility, NSICT and APM Terminal Mumbai – has been operating way over its design capacity, by as much as 130% of its nominal 4m teu per year capacity, for some years.

This had led to chronic congestion within the terminals, at the terminal gates and beyond – none of which was helped by a series of strikes and vessel collisions – and while it used to be the case that the port handled around 60% of India’s container traffic, this has been declining over the last year as shippers have looked to alternative gateways such as Mundra and Pipavav to direct Delhi-bound cargo.

Last year JNP handled just over 4.2m teu, a 1.6% decline on 2010, and Mr Singh understandably said he expected the new facility to be “well utilised” as soon as it opens.

According to the Shipping Ministry’s long-term plan for the port, it was due to see a throughput of nearly 10m teu by 2015, an aim that now looks impossible to achieve, and one that has been hindered more by the ministry itself than any external factors.

The first problem has been the ministry’s inability to finalise plans to build a new 4.8m teu terminal at the port, which would have gone a long way to solving its current problems in one go.

It had selected Singapore’s PSA as the concessionaire, but the operator subsequently withdrew from the project prior to signing the concession agreement. It is unclear exactly what prompted its departure – some have speculated that it bid too aggressively for the deal and subsequently realised it would be unable to turn a profit – but it lost its not insubstantial deposit in doing so.

But of greater long-term concern to private terminal operators is the Tariff Authority of Major Ports (Tamp), which continues to set container handling rates in the country’s major ports, including JNP. This situation has led to one of the more curious stand-offs in global shipping, whereby it has been ordering private operators to reduce rate charged per container handled if volumes increase – a move that all operators contest on the grounds that it prevents them from further investing and developing their facilities.

As the revenue per container decreases with the greater numbers of boxes are handled, the clear inducement is for operators to handle fewer rather than more – a bizarrely counter-intuitive approach to container operations that evidently discourages investment. By contrast, the private operators at Mundra and Pipavav have been able to set their own rates, and investment in new infrastructure has followed accordingly – as has throughput, which grew by 24% and 31% respectively last year.

This is as it stands for current facilities operating under Tamp’s 2005 guidelines. The new DP World facility will come under its 2008 guidelines, which are based on a more normative approach. “Coming under the 2008 guidelines will give us more flexibility upfront,” Mr Singh told The Loadstar.

Today’s announcement clearly represents good business for the operator, and in the relationship between the public and private sectors represents a step-change; but in terms of the capacity requirements of the port, and ultimately the country, it is only a small step.