India and Sri Lanka need to be able to stand on their own two feet to really win the regional cargo war, writes Stevie Knight

South Asian trade has seen China tighten its hold and India start to fight back. But to do so with any real gusto, India urgently needs a proper transhipment hub of its own. While this is primarily a commercial issue, this vulnerability is also creeping into the geopolitical realm.

“At present, India’s south and east coast throughput is getting hammered by Sri Lanka’s Colombo,” says Darron Wadey of Dynamar. “About three-quarters of its 7m teu is transhipment, and while some is going to Bangladesh, most is Indian cargo.” This has long been a thorn in the country’s side in terms of trade, but he also points out the lack of a transhipment hub also means India “has very little control over its own south and eastern seaboard cargo”.

Further, there’s the suspicion of a co-ordinated game plan from China says Mr Wadey. “Suspicion only because, at least in public, there’s no such thing as a central ‘Belt and Road Authority’,” and it could still be the result of opportunistic investment. However, other readings could be more cynical: a Chinese naval submarine docked at Colombo’s China Merchants Port’s (CICT) terminal in 2014, although he says to be fair, the resulting furore meant the port refused another visit in 2017.

Either way, any further Chinese influence in the region is not good news for India.

And the same is true for Sri Lanka: as Nivesh Chaudhary of Ascela points out, Sri Lanka “has walked right into China’s debt trap”.

Chinese loans, he explains, can have very high interest rates — often over 6% — with non-repayment allowing the assets to be appropriated. But despite being forced to sign over Hambantota port and 15,000 acres of land on a 99-year lease in 2017, like a gambler who’s still trying to recoup his losses at the table, the island has become even further mired with the Colombo Port City project. Some estimates now put its foreign debt at around $55bn — about three-quarters of its total GDP.

Worse, a nasty political spat — about Sri Lanka’s place between India and China — has weakened the country’s bargaining position: credit downgrades have left it with few lenders to help it face this year’s record debt repayments of $5.9bn, apart from a $1bn Bank of China lifeline which looks to be adding rope to the noose.

The question is how far will Colombo itself fall under Chinese control and where does this leave India’s transhipment?

Haphazardapproach

It’s not that India hasn’t made a start on its own hub: rather too many, in fact. Mr Wadey says: “There’s been a plethora of proposals, plans and projects — the result of Indian states and ports competing with each other.” Mr Chaudhary adds that “historically, India’s port development has been haphazard”.

Take what was to be India’s first transhipment hub, DP World’s ICTT facility at Vallarpadam in Kerala. This is fighting not just with Colombo but also silting issues and even after several years of operation its volumes have only just reached 556,000 teu.

So, Kerala state handed over a contract for a development at Vizhinjam to the seemingly indefatigable Adani Group which had already demonstrated its privately-run facilities could give the government-owned ‘major ports’ a run for their money.

However, it appears that the charismatic Guatami Adani might have bitten off more than he can chew. At the same time as Adani Ports and Special Economic Zones (ASPEZ) is putting its effort into Vizhinjam, it’s trying to develop both the 1.2m teu Kattupalli and the delayed 1.5m Ennore Container Terminal just 10 kilometres to the south, explains Mr Wadey, who adds that this juxtaposition alone may undermine the chances of success.

Further, the shine has definitely worn off the $1.05bn (Rs 7,525 crore) 1.8m teu Vizhinjam transhipment project, not just because of an 18-month delay (a ‘weather damage’ excuse being rejected by the central government) but also as a result of Kerala’s ‘pick ’n’ mix’ attitude to the contract which, although not actually corrupt, may have tilted the table toward ASPEZ.

Now, it seems, another project is joining the fray. Enayam near Colachel in Tamil Nadu State could have 16m draught and handle 18,000 teu vessels. However, once again the lack of co-ordination shows through, as according to Mr Chaudhary “the announcement that Enayam would become a transhipment hub was shortly followed by objections and other proposals for the location”. Both alternatives are now under fire from local fishing groups.

Bright spots

However, there have been some notable changes: after a lot of talks, India has finally relaxed its cabotage rules. “It’s worth keeping an eye on; already early signs are that more transhipment activity is taking place within India,” says Mr Wadey.

Further, the Sagarmala initiative – India’s domestic infrastructure development programme – aims to link the entire India ports sector into one all-embracing ecosystem. But it does mean that along with the big winners there are those that don’t stand to gain as much, which brings the whole issue back round to its starting point: more acceptance of a central strategy, less local competition.

India has started to invest in cracking China’s hold on the region’s trade lanes. It began, albeit slowly, with Iran’s Shaheed Beheshti terminal in Chabahar port which has just been handed over to a joint venture formed by Jawaharlal Nehru Port Trust, Kandla Port and a local Iranian company.

It’s an attempt at balance and tackles two rivalries in one, providing an alternative route into Afghanistan to its neighbour Pakistan, who also happens to have given the operation of Karachi Deepwater Container Port to Hong Kong-based Hutchison and Gwadar International Terminal to China Overseas Port Holding, says Mr Wadey.

However, this has not been straightforward. The Chabahar plans have been stewing for several years and it seemed that the return of US sanctions would undermine the project although, surprisingly, it ended up being removed from the banned list. There are also inevitable questions about its inward draw, although some predict the 7,200-kilometre International North-South Transport Corridor will facilitate $5bn of Afghan trade.

Realistically, it’s also up against the better-developed Gwadar only 72 kilometres away, “and the anchor of the China Pakistan Economic Corridor” says Mr Wadey, pointing out that while still challenging, some of Gwadar’s inland links are already in place and the port’s ability to attract business is likewise much further along.

Strategy goals

But the venture holds more strategic than economic and commercial value, says Mr Chaudhary. “Chabahar port was never envisaged or developed looking at its short or medium-term commercial viability.”

So, although it translates into reduced logistic costs for Iran and it’s the closest link to the Indian Ocean for Afghan goods, he underlines “for Afghanistan itself it reduces dependence on Pakistan and, hence, less Pakistani leverage over its domestic politics”, as well as giving India another route into the region.

Therefore, while it looks as if the project will be dependent on outside help for quite some time (India has pledged a further $500m investment package), Mr Chaudhary says: “there might not have been much choice; if India hadn’t stepped in, the Chinese would have done so and you’d have Chinese dominance on every shore in the region.”

So, if a modestly sized Iranian port is getting that kind of support, what about others? Could we find ports with a potential route into an untapped market and a Chinese neighbour starting to form an orderly queue?

Perhaps this isn’t so far-fetched. India has also just signed up to develop a route through Sittwe Port, Myanmar; “another strategic investment” says Mr Chaudhary. The scheme, which may have been given impetus by Chinese interest in Kyaukpyu, will allow cargo to travel 540 kilometres from Kolkata to Sittwe and then reach 158 kilometres inland to the Paletwa River Terminal via the newly dredged Kaladin River.

There’s also a pressing domestic reason for development. From Paletwa the cargo will soon be able to reach back up into the isolated Athalakshmi region in India’s remote north-east: this has, until now, only been accessible from the rest of India through the thin, vulnerable ‘chicken’s neck’ of the Siliguri Corridor. The project should cut travel time by three or four days between Kolkata and Mizoram, the southern, landlocked state in the ‘chicken's head’.

In short, it seems India is working hard to secure its trade routes against Chinese erosion; as Mr Wadey concludes it’s starting to look very much like “the Great Game, 21st Century, Indian Ocean style”.

So, it is possible we’ll soon see signs of a few Indian (as well as Chinese) backed port projects sprouting across the region.