Cablegate: Cochin Port Seeks to Eat Colombo's Lunch

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R 060511Z NOV 09




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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

Colombo's trans-shipment business a tempting target
--------------------------------------------- ------

3. (U) The Port of Cochin's sights are aimed squarely on Colombo.
According to "" (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

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.


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

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