Idle capacity at Sri Lanka’s largest container terminal reached a five-year high in 2015, hit by the double whammy of a new, more efficient, Chinese-owned terminal taking a share of business and shipping lines, deploying larger vessels that can’t sail in to the shallow  waters of the old terminal.

The Jaya Container Terminal (JCT), operated by the Sri Lanka Ports Authority (SLPA), can handle four million twenty-foot (TEUs) containers a year, four times as much volume as the 1.1 million container South Asia Gateway Terminal (SAGT), the private sector operator across the harbor, and nearly twice as much as the 2.4 million capacity of the new deep-water terminal Colombo International Container Terminal (CICT).

JCT’s idle capacity increased from a 2014 low of 38% when it handled 2.5 million containers (TEUs) to 45% in 2015. JCT’s container traffic was affected when the Chinese CICT terminal became fully operational in 2014. Traffic volumes at SAGT also declined to a five-year  low of 1.4 million TEUs in 2015, but the terminal still operates well in excess of its capacity. Capacity utilization at SAGT was at its highest in 2010 and 2011 at 172%, when it handled 1.9 million TEUs, declining gradually to 127% utilization in 2015.

The government owns Sri Lankan ports through the state-owned SLPA. Some container terminals in the port are operated by private sector firms who built them like SAGT, which is controlled by listed John Keells Holdings, and the Chinese terminal CICT controlled by Hong Kong-listed China Merchant Holdings. Private sector terminal operators have concession agreements with the government through the SLPA to operate these terminals. The SLPA also has 15% equity in both the Chinese terminal and SAGT.

CICT commenced operations during the latter part of 2013 – it handled around 60,000 containers that year. In the next year, volumes picked up to under 700,000, before surging to 1.6 million in 2015 to 67% of its 2.4 million TEU capacity – utilization capacity state-controlled JCT has never reached.

CICT’s success is largely due to the fact that it operates in the new Colombo South Port, which has a water depth of 18 meters that can support mega shipping vessels mainlines began deploying since 2006. Depth in the old Colombo Port where JCT and SAGT operate is 15 meters, not enough to keep mega shipping vessels afloat. Of the 1.6 million TEUs handled by CICT in 2015, 67% came from mega ships, and the balance was volume that shifted from JCT and SAGT.

A vessel calling JCT or SAGT can reach 300 meters in length and hold up to 8,000 containers. A mega ship calling CICT can reach 400 meters in length and hold more than 16,000 containers. The disruption caused by CICT in terms of container volumes is felt more by SAGT, which saw volumes dip 17% in 2015. JCT volumes fell 11%, but unlike SAGT, the terminal has always performed well below capacity.

Three of the largest ships to call on Colombo International Container Terminal, Port of Colombo

Apart from the being the largest operator in terms of volume and extent, JCT is also the lowest ranked in terms of productivity.

The terminal has 20 quay side cranes, twice as many as SAGT with 11 and CICT with 12. But JCT’s cranes are much older, each able to move 23 containers an hour, compared with 34 for SAGT and around 30 for CICT.While the two private sector terminals employ around 500 workers, the public sector JCT employs around four times the private terminals and is overstaffed.

CICT is good news for the overall port sector. Helped by growth in CICT volumes, overall volumes at the Colombo port grew 6% in 2015, impressive given the performance of its regional competitors: Dubai saw volumes grow 2.4%, Hong Kong saw volumes decline 9.5% and volumes fell 8.7% in Singapore. In India, 12 major ports saw volumes increase by less than 2%. If not for CICT, the volume brought in by the mega ships would not have reached Sri Lanka and the Colombo port, instead of reporting a 6% growth rate in 2015, would have had a 14% decline.

Around 70% of Colombo’s container volume is mainly transshipment from India. According to the shipping industry, Colombo transshipment from Bangladesh, Myanmar and East Africa is also beginning to pick up. Usually, containers from East Africa are loaded on feeders (smaller ships that feed bigger ships at transshipment ports) that sail past Sri Lanka on their way to Singapore where they are transshipped to Europe, again sailing past Sri Lanka. With trade volumes still recovering after the global financial crisis, shipping lines are going through a rough time as they take delivery of new, larger ships they had ordered during the good times. The global container ship fleet grew 8.5% in 2015, according to the Journal of Commerce, while container volumes grew by only 1.1%.

Competition for volume is intense among shipping lines and regions ports, and according to the Journal of Commerce, 2016 is forecast to be worse than 2015. Terminals will have to be efficient to attract new volume to maintain growth. SAGT introduced new routes to stem the outflow to CICT, and it claims its efforts have been a success. It still maintains volume of 137% over capacity.

The challenges for JCT will be unique.

For shipping lines, the longer a ship idles at a port, the more money is lost, so speed is an important indicator for a terminal. Both SAGT and CICT can move between 30 to 35 containers an hour, with one quayside gantry. JCT can manage less than 25. For shipping companies sustaining heavy losses, indicators like this go a long way in determining which terminal to use.

JCT’s management style is also contributing to its low performance. It must follow cumbersome government procurement rules to even repair its equipment. Its cranes have not been upgraded since they were first commissioned in 1985. The terminal is also plagued with several trade unions, each affiliated to different political parties, making reforms difficult.

A slump for JCT couldn’t come at a worse time for its owner, the SLPA.

The SLPA, which saw profits double from Rs4.4 billion in 2010 to Rs8.9 billion in 2014, is facing a financial crisis. It borrowed $1.5 billion to develop the Hambantota Port, which is not attracting enough ships to generate revenue. The SLPA’s loan repayment commitment for 2016 is Rs9 billion and is expected to double by 2018. JCT, and even SAGT, will still have plenty of business if they innovate and improve efficiency. Eventually, JCT and SAGT will have to be overhauled to make the harbor deeper.