Port Facilitation for Cost Efficient Transshipment

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Port Facilitation for Cost Efficient Transshipment

Lowering the costs associated with Nepal’s foreign trade has long remained a challenge. Increasing port access for Nepal’s third country trade will surely be a major step forward.


Of late, the search for alternatives to Nepal’s current sea port access has gathered momentum to minimise problems in transportation and transit in the country’s third country trade. The government has repeated its commitments to focus efforts on finding solutions as the comparatively higher cost of transit and transportation has decreased the competitiveness of Nepali businesses. However, people from the industrial and business fraternity see ineffectiveness in the government’s efforts. According to them, there is an absence of facilitation in transportation and transit despite the increase in the country’s imports and exports. Nepal has been using Indian ports at Kolkata, Haldiya and Visakhapatnam for overseas trade. Besides, there have been principle agreements between Nepal and India to allow Nepali traders to use Dhamra and Mundra ports at Odissa and Gujrat, respectively. Talks are also ongoing to allow Nepal to use the Haldiya-Sahibganj-Kalughat Waterway. In recent years, increasing port access for Nepal’s third country trade has become a key agenda for talks in the Nepal-India intergovernmental meetings.

It is expected that the utilisation of multimodal terminals at Sahibganj, Jharkhand and Kolaghat, West Bengal, as proposed by Nepal, can reduce Nepal’s distance to access the seaway. However, commercial viability of access to ports like these for Nepal’s foreign trade is yet to be studied.

Experts say that trade facilitation will gather momentum with the fast implementation of the agreements. “We can be hopeful that additional infrastructures will be ready for transportation and transit facilitation,” says former commerce secretary Ravi Shanker Sainju, adding, “The quicker the agreements are implemented, the stronger will be our foundation of competitiveness in international trade.”

Currently, Nepal’s 90 percent transportation and transit in international trade is carried out via Indian ports and roadways. But it is fraught with several difficulties and challenges. In every meeting related to Nepal-India bilateral trade and transit, the Nepali side has given importance to the agenda of identifying the alternatives to the existing sea ports and roadways. However, this focus of the government hasn’t produced expected results.  

Nepal’s port access for overseas trade was limited to Kolkata and Haldiya ports at West Bengal until three years ago. There were no alternatives to Kolkata Port for container cargo and Haldiya Port for bulk cargo imports. It was the opening of Andhra Pradesh-based Vizag Port for Nepali importers in 2016 that ended the monopoly of the Kolkata Port in transshipment of goods to Nepal. “Despite this, the high cost of transportation has not come down,” says Ashok Kumar Temani, chairman of Road Transport and Transit Committee of the Federation of Nepalese Chamber of Commerce and Industries (FNCCI). In 2018/19 when 96,833 container cargoes from third countries entered Nepal, 79,777 such cargoes were transported from the Kolkata Port. “It is not that the Kolkata Port authority has not initiated procedural improvements for Nepal bound cargo after Vizag Port came ahead as a competitor. However, the results haven’t been positive as expected,” expressed Temani. In February 2019, the Direct Transshipment System (DTS) was introduced replacing the Custom Transit Declaration (CTD). Under the new system, shipping companies are responsible for transportation of goods from their origin to the destination of consignments. Government officials had claimed that the new transshipment system would reduce such costs by 50 percent. Nonetheless, importers say that this cost has increased by around 50 percent after the implementation of DTS.  

Under the DTS arrangement, Nepal bound container cargoes at Kolkata Port are fitted with the Electronic Cargo Tracking System (ECTS) device before they are transported via railway to customs points at the Nepal-India border. The mandatory implementation of ECTS was blocked by a Kolkata High Court ruling which cited that it violates the provisions of the Nepal-India Transit Treaty, 1961. Nepali importers, however, say that ECTS has become a matter of compulsion as the port authority is unwilling to help in the management of containers through the CTD mechanism. Under the CTD system, importers of goods are required to complete the customs clearance process at Kolkata Port before the containers are transported to Nepal.

Earlier, Nepali importers had expected that the uncertainty and issues related to demurrage and detention would be resolved as ECTS requires clearance at Indian customs offices at the Nepal-India border. But government officials think that the limited participation of shipping companies in this system has led to the anomaly in transshipment charges. Eknarayan Aryal, consul general of Nepal in Kolkata, said that authorities of both countries have been trying to come up with policy arrangements to increase the competition between shipping companies.

Nepali importers have been opting for Vizag Port as the implementation of ECTS in Kolkata Port for Nepal bound shipments has increased the cost of transporting containers. Despite the fact that Vizag Port is twice the distance from Birgunj compared to Kolkata. The Birgunj Dry Port, which is linked to the Indian railway, is 749 kilometres from the port in Kolkata while it is 1,414 kilometres for Vizag Port. Transshipment of cargo from Vizag Port to Nepal started in June 2017, 16 months after the agreement was signed between Nepali and Indian officials to open the port for Nepali importers.

In 2017/18, the Kolkata Port managed a total of 82,208 Nepal bound containers. The number was 4,746 for Vizag Port for that year which increased to 17,056 in 2018/19. According to officials at Himalayan Terminals, the firm which manages the Birgunj Dry Port, 65 percent of the containers transported from India via railway come from Vizag Port. “It is not that Vizag Port is a cheaper alternative for us. We have been forced to opt for Vizag as transshipment cost in Kolkata Port has risen unexpectedly,” said Madhav Rajpal, general secretary of Birgunj Chamber of Commerce and Industry (BiCCI).  

Rajpal, who is engaged in the business of importing coal, complained that the Indian Railway does not provide rakes on time for bulk cargo transport making importers to wait for up to six months to move goods from Haldiya Port, which is also managed by Kolkata Port Trust. “This situation has considerably added to our import costs. The incompetence of port authority and Indian Railway has affected our business,” he said. Importers also blame the dillydallying of Nepal’s government to resolve the issues in transshipment as another factor eroding their business capacity.  

In the meantime, port authority officials at Kolkata claim that they have been focusing on infrastructural and procedural improvements to address the problems faced by Nepali importers. Vinit Kumar, chairman at Kolkata Port Trust said that expansion of port area has been one of the key focuses of the authority’s long-term infrastructural reform plan. During his Nepal visit a few months ago, he shared with Nepali importers the plans of the Trust to expand the container yard to an additional 25,000 sq metres. Currently, Kolkata Port has been handling 650,000 containers per year in an area covering 100,000 sq metres. “We will expand this area and increase our handling capacity to 1 million containers a year,” said Kumar.

Importers say that problems caused by geographical complexities in Kolkata Port cannot only be addressed by improving the port’s infrastructure and simplifying procedures. As Kolkata Port is a riverine harbour located 203 kilometres from the Bay of Bengal and has low water depth, the problems posed by its inability to host mother vessels (large freighters) cannot be overcome fully just by technical and procedural reforms, they say. At present, a ship carrying 800 containers can dock at the harbor in Kolkata, whereas the harbor in Haldiya can host a freighter carrying up to 2,000 containers.  

The rise in the cost of transportation of goods due to the infrastructural and geographical limitations of the 150-year old Kolkata Port and greater distance to reach Vizag Port have led stakeholders to find alternatives to these harbours for Nepal’s third country trade. They are hopeful that utilisation of the proposed Dhamra and Mundra ports will help in minimising transportation costs and will become a basis to increase competitiveness of Nepali businesses.

“The Dhamra Port which is situated 300 kilometres from Kolkata can resolve the issues being faced by Nepali importers,” said consul general Aryal.

Till date, the ports that have been used by Nepal for third country trade are situated at the eastern coastal region of India. These ports are regarded as effective for trading with countries in East Asia, whereas the Gujrat-based Mundra Port, the largest private sector-operated port in India, is considered efficient for trading with Europe and United States. Considering the distance from Nepal and feasibility, Mundra isn’t likely to be a port of choice for Nepali importers anytime soon. However, the utilisation of Dhamra Port can be important to reduce time and costs associated with Nepal’s international trade.

The Dhamra Port is just 150 kilometres from Haldiya Port which Nepali importers have been using for transshipment of bulk cargo. The port authority plans to increase the number of berth handling of bulk cargo to 35 by 2025 from five at present. “If this number is increased, the problems Nepali importers have been facing in bulk cargo transport from Haldiya can be resolved,” said BiCCI General Secretary Rajpal. The Dhamra Port authority has been operating a 60 kilometres-long railway from the harbor to Bhadrak to offset the problems caused by the lack of robust road infrastructure in the area.

“We are working to construct a new rail track with a two-lane road and a LNG pipeline corridor within 2021 to enhance the connectivity,” informed Sudeep Dasgupta, chief operating officer (COO) at Dhamra Port Company. According to him, three berth stations for cargo handling have been already constructed. These developments indicate that container cargo handling in Dhamra, which was postponed earlier due to the poor road connectivity, will become possible within the next two years. Nepali importers expect the infrastructural improvements in Dhamra Port will benefit Nepal for overseas trade. But as the size of Nepal’s business volume is small, it will not be sufficient for the port for container handling, they say.

Situated on the shore of the Bay of Bengal, Dhamra Port’s minimum water depth is 18 metres which is 16 metres in Vizag Port. The port authority in Dhamra plans to increase it to 22 metres. At present, these harbours can host mother vessels that can carry over 6,000 containers at once. According to former commerce secretary Sainju, the cost of transshipment of goods to Nepal can be reduced as Dhamra Port can host mother vehicles and its ocean fare equals to that of Vigaz Port. These features make this port viable for Nepali importers for both bulk and container cargo transport from third countries.

“Keeping the viability of the port in mind, Nepal signed a principle agreement for the utilisation of the port during the intergovernmental committee meeting,” said Sainju.  Government officials also believe that utilisation of Dhamra Port will contribute to lowering the cost associated with Nepal’s third country trade. “The distance from Nepal to Dhamra Port is 400 kilometres less than Vizag Port which reduces the Nepal’s import costs,” shared Aryal, adding, “Dhamra can be comparatively easier for us as this is a private sector managed port.”  

Importers have asked the government to come up with comprehensive plans to address the issues. “There is a lack of strategic planning for transit facilitation. The arbitrary of shipping companies has added to the cost of importing goods from Kolkata. There is a monopoly of shipping companies also at the Vizag Port,” said FNCCI’s Road Transport and Transit Committee Chairman Temani. He suggests the government to come up with a policy to promote domestic logistics companies for long term solution of the problems. Trade experts say that it is an irony that the government has not been able to come up with the law related to logistics even with the yearly increase in the country’s import business. The transit in Nepal’s international trade has been running with a monopoly of foreign companies. The country’s internal transport is also in poor shape. Some initiations of the government to establish legal and physical infrastructures to control the arbitrariness of shipping companies haven’t produced any results.

To end the limited access to the sea route for international trade, Nepal has started talks with China to access its sea and dry ports. Both neighbours have also already agreed to open seven new border points. However, citing geographical difficulties, Chinese officials say that transportation and transit between Nepal and China will not be easy as expected. It is not that connectivity with China is impossible. But there are no other options for Nepal other than to focus on optimum utilisation of Indian ports at present. The dependency over Indian port for third country trade is a geo-political compulsion for Nepal. Besides the proposed ports and waterways, it is important that the government initiates talks with India to open other sea ports for Nepal’s third country trade, experts say.

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