COCHIN PORT SEEKS TO EAT COLOMBO'S LUNCH

UNCLAS SECTION 01 OF 03 CHENNAI 000319 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EINV ETRD EWWT PGOV PREL IN CE SUBJECT: COCHIN PORT SEEKS TO EAT COLOMBO'S LUNCH REF: COLOMBO 971 CHENNAI 00000319 001.2 OF 003 ¶1. (U) Summary: The Port of Cochin, located on India's southwest coast, is expanding in an ambitious attempt to alter shipping patterns in the region. Seventy-five percent of the containers that reach India's ports are trans-shipped via other (non-Indian) ports, and the Port of Cochin is hoping to steal a chunk of this business, particularly from Sri Lanka's Port of Colombo. Cochin hopes its port expansion will attract mainline shipping vessels, reducing the need for trans-shipping via third countries. The new trans-shipment terminal is scheduled for completion on November 30 and should be fully operational in March 2010. Some obstacles remain to the success of this project: road and rail links from the port to major transit routes within India are still incomplete, and Kerala's famously militant labor unions may well protest some of the changes the upgraded port will require. End Summary. Port of Cochin project nears completion -------------- ¶2. (SBU) N. Ramachandran, Chairman of the Port of Cochin told us in late October, that the port's ambitious expansion project will make it India's largest container terminal, able to manage container ships up to a 14.5-meter draft. He explained that the project, which will be inaugurated on November 30 and fully operational by March 2010, should allow India-bound containers to reach their destinations 7 to 10 days more quickly, emphasizing that it lies only 70 nautical miles from the Suez Canal route and 11 nautical miles from the Persian Gulf shipping route. He also said that he expects the port to take business from Colombo's port, which currently serves as a major trans-shipment point for India-bound containers, as do Singapore and Dubai. (see reftel). He noted that fully 75 percent of containers that reach India's ports are trans-shipped via other countries and that he expects to "drastically reduce" that figure when the Port of Cochin is fully operational. Colombo's trans-shipment business a tempting target -------------- -------------- ¶3. (U) The Port of Cochin's sights are aimed squarely on Colombo. According to "livemint.com" (associated with the Wall Street Journal),some 60 percent of the 2.7 million TEUs (twenty-foot equivalent units, the standard measure in the container business) handled by Colombo's port in 2008 originated from or were destined for South Indian ports, and another 10 percent from/for other ports in India. A study conducted at Chennai's National Institute of Port Management estimates that the Cochin Port could reduce importer-exporters' costs by some USD 150 per container compared with trans-shipping containers via third countries, a figure confirmed by DPW's managing director for the Indian sub-continent, according to a June press report. India's shipping ministry has calculated that India's exporters and importers incur extra costs of more than USD 200 million per year on trans-shipment of containers via other ports. Until the global slowdown, India's port container traffic had been increasing at about 15 percent annually, and stands at approximately 7.8 million TEUs now. ¶4. (SBU) The project has the support of significant business interests. Dubai Ports World (DPW, the world's fourth-largest container port operator) won a 30-year contract in a public auction in 2004 to develop and operate the terminal on Vallarpadam island in Cochin's port area. DPW's Chief Executive Officer told the Indian press that his company had invested USD 500 million in the project and expected to commence operations there by mid-2010. DPW expects the Vallarpadam facility to be able to handle more than 1 million TEUs annually in the initial phases, but has plans to eventually increase capacity to 5.5 million TEUs. (Note: Cochin's port currently consists of two main parts, the Rajiv Gandhi container terminal and another terminal for bulk cargo. Once the Vallarpadam container terminal is operational, the Rajiv Gandhi terminal will become a bulk cargo facility. End note.) Infrastructure may not be ready in time -------------- ¶5. (SBU) Some of our contacts in the shipping industry have pointed out some potential problems with the port, and doubt that it will be operational as soon as the port's promoters expect. One shipping company CEO told us that the terminal's location on an island poses a road and rail connectivity challenge. He noted that a seven-kilometer rail bridge has been completed, but that it is not CHENNAI 00000319 002.2 OF 003 fully connected to the railway lines in the existing port areas. In contrast, Cochin Port Chair Ramachandran had told us that all rail connectivity to the port was complete. ¶6. (SBU) There may also be delays in road connectivity. An 18-kilometer, four-lane highway linking the terminal to the mainland is still incomplete, according to another shipping company executive, adding that roads are the primary transport link for goods going to and from the port. Ramachandran admitted to us that the road is some three months behind schedule but stressed that it will be completed by March 2010. He noted that the port will use roll-on, roll-off (RORO) barges to move containers to Vallarpadam Island in the interim. All of our shipping industry contacts expressed serious skepticism about the feasibility of the March 2010 timeline. The shipping company CEO also told us that the RORO barges are very inefficient, extending loading times, which will discourage operators of mainline shipping vessels from using the port. Managing militant labor is key -------------- ¶7. (SBU) While the infrastructure challenges may be surmountable, given enough time and resources, a potentially much bigger challenge also faces the port, namely labor issues. Kerala has a long history of both communism (the Communist Party-Marxist currently heads the state's government and has headed the state's government for about half of the past 50 years) and labor militancy. While none of the port's five unions has caused major trouble for DPW yet, they are laying the groundwork by calling publicly for the Rajiv Gandhi terminal to remain open even after the Vallarpadam facility opens. ¶8. (SBU) The Rajiv Gandhi terminal is a notoriously high-cost, low-productivity facility, according to a shipping company executive. He told us that the facility currently takes about 12 hours for a feeder ship to discharge its cargo, while the same-sized ship would need only an hour to do so at other international trans-shipment hubs. He said that he expects the unions to agitate actively to keep the Rajiv Gandhi terminal open even after Vallarpadam opens, which would be a major headache for DPW. ¶9. (SBU) A knowledgeable former trade unionist (now a Congress Party state legislator) told us that even though the Port's unions have "somewhat mellowed," their aggressiveness "continues to pose a problem for the development of the port." He said that he expected labor trouble as laborers are transitioned from the current container terminal to the bulk container terminal, noting that unions' tendency to launch "flash strikes" in Cochin has resulted in a lot of business lost to Tamil Nadu's port in Tuticorin. ¶10. (SBU) A port official was more optimistic about the labor situation, noting that the unions have "generally agreed" to the plan to move all the operations of the existing container terminal to the new facility. He said that the employees who cannot be absorbed by the new facility will be retained by the port for the bulk cargo operations, which ought to increase. He admitted that there might be some problems with port workers who are employed by private contractors, but argued that there should be enough jobs for everybody as business picks up with the opening of the new terminal. Comment -------------- ¶11. (SBU) There is little doubt that the backers of the Port of Cochin's expansion smell a legitimate business opportunity. Given India's size and rapid economic growth, it makes sense to pursue this kind of project, which also sits well with the multitude of other major infrastructure development projects in India needed to help overcome the country's severe "infrastructure gap." The physical stumbling blocks in this particular project are almost certainly surmountable. As with most big projects, it will likely come in over budget and behind schedule, but there is every indication that the project will come online within the next year or so. There is less certainty about the labor issues, but Keralites have lots of practice in working around tricky labor issues. Ultimately, it will be the shipping companies who determine the project's ultimate success or failure as they determine where they get the best value. Like Colombo's port, Cochin's backers are also pursuing a "build it and they will come" strategy. Perhaps there will be enough business for both; if not, may the best team win. End Comment CHENNAI 00000319 003.2 OF 003 SIMKIN