Financial Times

Falling port volumes see lacklustre interest in port tender

By Natasha Gunaratne

A significant decline in port volumes over the past year has created a lack of interest on the part of bidders for the Colombo Port Expansion Project’s South Harbour Terminal. When bids closed this week, only one offer, Aitken Spence Shipping and China Merchants Holdings International had submitted a joint bid for the South Harbour Terminal although 15 companies in total had picked up the bid documents.

This is the second time around bids were called for the terminal project after the last round where six companies bid, was marred in controversy over a lack of adherence to tender guidelines. In this latest round, the deadline was extended from mid-June 2009 to this Wednesday due to a lackluster response from the industry, sources said.

Chairman of the Sri Lanka Ports Authority (SLPA) Priyath Bandu Wickrema told the Sunday Times FT that companies did not bid for the South Harbour Terminal mainly due to cash flow problems, not low port volumes. “Shipping companies are experiencing losses,” he said. Dr. Wickrema said the Port of Colombo volumes are down by 9.75% to date but this is comparatively better than other countries in the region including Singapore which has seen a 20% drop in volume. He said the global shipping trade is going down and expects the downturn to last until the end of 2009. However, he added that the SLPA was expecting at least a couple of proposals.

Dr. Wickrema said the bid from Aitken Spence and China Merchants Holdings will will be evaluated by the Cabinet Appointed Negotiating Committee (CANC) and the Technical Evaluation Committee (TEC) which will take approximately two weeks. Including the evaluation of the financial proposal thereafter, the entire evaluation process is expected to take one month.

According to the latest available data on port volumes, the Colombo Port handled 277,268 twenty-foot equivalent unit’s (teu) in May 2009 as opposed to 305,000 teu’s in May 2008, almost a 10% decline. The Jaya Container Terminal which is managed by the Sri Lanka Ports Authority (SLPA) handled 133,815 teu’s in May 2009, a 18% decline from 163,378 teu’s handled in May 2008.

South Asia Gateway Terminal (SAGT)’s volume went up by around 1% to 143,453 teu’s in May 2009 from 141,643 teu’s in May 2008. However, SAGT’s domestic container volumes which give four times the revenue of transshipment containers, declined to 25,976 teu’s in May 2009 as opposed to 31,888 teu’s during May of last year. Reliable sources told the Sunday Times FT that domestic containers which are import/export containers pay US$140 per 20 foot container whereas transshipment containers pay US$40 for a 20 foot container. Similarly, the SLPA managed terminal also declined in terms of domestic container volumes to 31,752 teu’s in May 2009 from 36,544 teu’s in May 2008. Overall, the Port of Colombo’s domestic volumes declined by 15% from May 2009 to May 2008.

The sources said ports cannot attract volumes and is the main reason for the lacklustre interest on the part of bidders. The source added that the industry needs the South Harbour and that should have been constructed at least two years ago to accommodate mega ships and large vessels which cannot call the current Port of Colombo due to draft restrictions. He added that in order for Colombo to be a mega hub and service not only the South Asia but the Middle East and Eastern Africa as well, the South Harbour terminal must be constructed.

Despite the decline in port volumes, sources said the bid submitted by Aitken Spence shows the company has confidence in the industry and the Sri Lankan economy and attracted China Merchants Holdings, a major conglomerate in the containers and shipping business.

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