In the past one year, the maritime sector exhibited a mixed performance. Overall, there was improvement in efficiency and operating margins across ports, however, traffic witnessed only a modest growth. The outlook for the port sector is positive due to a series of initiatives recently launched by the government, such as Sagarmala and Make in India. Going forward, issues related to hinterland connectivity and clearances need to be addressed. Industry experts share their views…
How has the port sector progressed in the past one year?
The overall traffic at major ports during 2015-16 increased at 4.3 per cent over 2014-15, to reach 606.4 million tonnes (mt). However, while the data for total traffic at minor ports is not yet available, it was observed that traffic at ports in Gujarat, the largest state in terms of minor port traffic, has remained nearly flat at 339.8 mt during 2015-16 compared to 336.1 mt in 2014-15.
Some of the notable developments in the port sector in 2015-16 have been the coastal cargo pact with Bangladesh, an agreement for the development of Chabahar port in Iran, creating the draft Central Port Authorities Bill, the release of a draft national perspective plan on Sagarmala, modifications to the cabotage policy and amendments to clauses of the model concession agreement for major ports. Each of these is likely to create a strong positive impact on the port sector in the country and help it overcome the global slowdown to an extent and maintain vibrancy in the sector.
Maritime logistics are an important component of the Indian economy, and accounts for 90 per cent of export-import (exim) trade by volume and 72 per cent by value. A total of about 1 billion tonnes (bt) of cargo is handled across the over 200 ports. Major ports in India are increasingly getting ready to add to their capacities as well as develop infrastructure facilities to promote exim trade. The central government’s “Ease of Doing Business” programme is likely to transform the structure of ports and the implementation of such initiatives will bring in a plethora of opportunities for Indian ports. The Jawaharlal Nehru Port Trust (JNPT), India’s number one container port, has performed immensely well in handling the country’s container cargo during the previous financial year, registering a throughput of 4.49 million twenty-foot equivalent units in 2015-16, of which the port’s self-operated container terminal has shown a growth of over 10 per cent over the past year. JNPT is rapidly building infrastructure capabilities and implementing “ease of doing business” initiatives to create one of the best ports in the world.
Cyril C. George
In terms of contribution to world seaborne trade (by value), containers stand at 52 per cent, tankers 22 per cent, general cargo 20 per cent and dry bulk 6 per cent. For India, the contribution by containers is 70 per cent, well above the overall world contribution.
In 2015-16, major and non-major ports in the country handled 1,072.47 mt of cargo compared to 1,052.23 mt handled during 2014-15, an increase of 1.9 per cent, and is estimated to reach 1,758 mt by 2016-17. The share of major ports in total traffic handled at Indian ports increased by 4.3 per cent, from 581.34 mt in 2014-15 to 606.37 mt in 2015-16.
However, the contribution of non-major ports declined by 1 per cent during 2015-16 to 466.1 mt from 470.89 mt during 2014-15. Competition among major, non-major and corporate ports in the country was healthy during 2015-16, enabling port users to weigh their options of using the port of their choice, thereby reducing the overall costs to trade. To support the port sector, the government has allowed foreign direct investment (FDI) of up to 100 per cent under the automatic route for port and harbour construction and maintenance projects.
Major ports are being gradually converted from the service-oriented model to the landlord model by adopting the public-private partnership (PPP) model. Further, state-owned traditional minor ports have been identified for major infrastructural development.
Captain B.V.J.K. Sharma
Financial year 2015-16 has been historic for the port sector in the country. Capacity of 94 mt was added through 34 capital investment projects.
The capacity of major ports at the end of financial year 2015-16 increased to 965 mt from 871 mt in March 2015. Operating profit margins for major ports improved from 27 per cent in 2013-14 to 39 per cent in 2015-16. Improvement in efficiency parameters like turnaround time lowered logistics cost for trade, resulting in annual cost savings of Rs 4 billion. Turnaround time reduced by 40 per cent at Paradip, V.O. Chidambaranar and Visakhapatnam ports. Further, projects worth Rs 728.18 billion were awarded for port modernisation and new terminal development.
As per the Ministry of Shipping (MoS), Kandla became the first major port to reach 100 mt of traffic in a year, helped by the 20 per cent improvement in port efficiency, while JNPT became the first major port to reach Rs 10 billion of net profit helped by the 12 per cent efficiency improvement.
Over the years, we have seen that the trend has been towards substantial growth in traffic volumes at private ports due to greater efficiency, deeper draught and competitive tariff structures. For instance, Mundra port in Gujarat is handling more than 100 mt at present, JSW Jaigarh Port in Maharashtra has started handling large Capesize vessels since April 2015, Krishnapatnam and Gangavaram, which were commissioned in 2008, are the fastest growing ports on the east coast and have already overtaken some of the neighbouring major ports in terms of volumes.
How do you see the development of port sector under the Sagarmala initiative?
Sagarmala has a multi-pronged approach towards port-led development. The formation of the Sagarmala Development Company and several other initiatives by the government could be construed as starting points towards achieving the larger goal of port-led development.
There is a significant impetus towards coastal shipping and using inland waterways and increasing their share in the overall freight modal mix in the country. For example, Odisha’s intention to invest 10 per cent equity in the special purpose vehicle that is proposed to be formed for development of a heavy-haul rail corridor from Salegaon to Paradip port being taken up by Indian Port Rail Corporation Limited is one such clear demonstration of realising the targets set under Sagarmala. Likewise, the MoU signed between the Inland Waterways Authority of India and Maruti Suzuki to experiment with the movement of cars by a roll-on, roll-off facility from Varanasi to Kolkata through National Waterway 1 as a pilot project, is an indication of the private sector’s willingness to explore alternatives for transport.
The creation of coastal economic zones (CEZs) will be another large driver of port traffic and a giant step towards realising the objectives of the Make in India initiative.
Sagarmala is aimed at accelerating economic development in the country by harnessing the potential of supply chain integration and the country’s coastline and river network. The prime objective of this initiative is to promote port-based or port-proximate industrial and manufacturing clusters. These clusters will be developed in three segments – energy, materials and discrete manufacturing. Reducing logistics cost and time for transportation of domestic and exim cargo are the other objectives of this initiative which will provide the most optimal mode of cargo evacuation to and from ports. Upon completion of this initiative, India’s total port capacity could go up to 3,000 mt by 2025 from the current 1,500 mt, at an ambitious investment of Rs 1 trillion in the port-led development sector. Under Sagarmala, six locations have been identified for new ports, based on saturation of nearby ports, the non-availability of a port on the coastline stretch and strategic location.
Vadhawan, Paradip south satellite port and Sagar port have been identified as places where existing ports have been saturated. The port at Vadhavan in Thane district will have a depth of 20 metres and will act as a satellite port for JNPT. It is expected to cater to container traffic mainly from the northern hinterland.
Cyril C. George
Sagarmala envisages four broad focal areas: modernising port infrastructure, port connectivity, port-led industrialisation and skill development of coastal communities. The project further envisages the development of a number of new ports. Sagarmala also involves the creation of CEZs in the immediate vicinity of ports. By doing so, both the port and the manufacturing unit will benefit immensely, leading to the economic development of the region. It will be a win-win situation for both the port and the industrial sector. With the development of inland waterways connecting the hinterland, the government’s coastal shipping policy is certainly a futuristic way of developing the maritime sector in the country. Recently, a new waterway service between Varanasi and Kolkata has already started and the construction of terminals is in progress. Promoting water transportation has been a priority under Sagarmala and will reduce logistics costs to a great extent.
Captain B.V.J.K. Sharma
Sagarmala will have an overall positive impact on the socio-economic development of coastal regions. It will lead to port-based industrialisation, urbanisation, coastal tourism, integration with hinterland hubs, creation of multimodal logistic parks, economic zones and most importantly, it will develop coastal areas.
The main focus is to provide intermodal solutions and optimise the modal shift away from road and rail to waterways which are currently underutilised in our country, in spite of being the most environment-friendly, cost-efficient and effective mode of transporting cargo. The National Perspective Plan detailing the contours of Sagarmala was released in the Maritime India Summit in April 2016. The programme could lead to annual logistics cost savings of close to Rs 350 billion and boost India’s merchandise exports to $110 billion by 2025.
What are three key issues and challenges being faced by the sector?
The global slowdown is a major challenge that the sector is facing. During 2015-16, it was observed that in the non-petroleum-oil-lubricants trade category, exports fell by 8.5 per cent, while imports declined 4.2 per cent year on year, in value terms.
While there are several new initiatives being contemplated by the government, the agility with which these initiatives will be implemented remains to be seen. For example, while the government has been positive about increasing the share of coastal shipping through a modal shift, it will become a reality only with the joint effort of non-major ports and the private sector.
Seamless connectivity with ports and making them an integral part of the overall logistics system continues to be one of the key issues. While there has been some improvement via projects taken up by the government with multilateral funding, PPPs and the creation of IPRCL which is likely to ease this to a great extent, today, lack of connectivity continues to jeopardise the competitiveness of the sector.
A major issue is the delay in the implementation of projects, especially greenfield ports, on account of the protracted process of obtaining environmental and security clearances. Other issues are inefficient road and rail connectivity and litigation during the tendering process. Challenges are also faced after the award of projects. Obtaining clearances is the most challenging. The government is now working on reforms recommended by experts, such as granting more freedom to major ports, improving efficiencies and basic infrastructure, modernising ports and improving connectivity. To ensure the success of the port sector, we need coordinated efforts across various infrastructure departments at the central and state levels to address infrastructure development and connectivity issues.
Cyril C. George
Most of the major ports in the country were created many years ago and cities have subsequently developed around them. The three key challenges faced by ports are congestion, infrastructure and documentation.
Year after year, the increase in cargo handling and the movement of cargo by road has led to severe congestion. The congestion issue can be addressed to a great extent by movement of cargo through multimodal transport like the rail network, coastal shipping and inland waterways. A dedicated road and rail network needs to be constructed to connect ports to the hinterland.
To compete with neighbouring new ports, infrastructure development by way of upgrading equipment and facilities needs to be undertaken. Infrastructure at ports has also been developed via the PPP mode.
A cumbersome documentation process and duplication of work by government agencies has delayed the approval process for port users. For faster clearance of cargo, the process and procedure has been rationalised and simplified by the use of information technology-enabled solutions.
The Chennai Port Trust has taken the following initiatives to address the above issues – facilitating private container train operators, Distribution Logistics Infrastructure running weekly container trains from Chennai to the Marigold container freight station near Bengaluru and to Hyderabad, the commissioning of radio frequency identification-enabled document checks and port access control systems and marine shuttle services for moving containers between Chennai and Kamarajar port.
Captain B.V.J.K. Sharma
- Key steps that need to be taken are:
- Fast-tracking last-mile road-rail connectivity projects.
- Resolving issues related to projects governed by the 2005 Tariff Authority for Major Ports guidelines to unlock capacities.
- Integrating coastal shipping and inland water transport in the intermodal supply chain.
- Revisiting the MCA under PPP projects for the rational allocation of risks among various stakeholders and protecting the private sector against any abrupt changes in the economic or policy environment.
What is the outlook for the port sector for the next one-two years?
The outlook for the port sector will be driven by a few important factors. The emphasis of the government, through policy and other initiatives, on coastal shipping is likely to increase coastal cargo at ports, which is likely to grow in the short to medium term.
Overall exim traffic may continue to grow, though at a modest rate with a slight movement in global trade projections, while the Make in India initiative and Sagarmala may have a long-term positive effect on port traffic. The effects of slower global trade would be commodity specific.
There may be a few commodity-specific structural changes that ports may witness. The increase in the domestic production of coal (domestic production rose by 8.5 per cent in 2015-16 compared to 7 per cent in 2014-15) is expected to continue, leading to a downward impact on imported coal traffic. Likewise, the slowdown in steel production because of global demand trends and an increase in the domestic production of iron ore could lead to a reduction in iron ore traffic. However, this may be compensated for by increased coastal movement and thus the overall port traffic in the country is likely to have a positive growth. The coastal cargo pact with Bangladesh is also likely to have a positive impact on total port traffic.
The pace of infrastructure development in the port sector has been slow in the past few years due to the general economic slowdown. With signs of revival in economic growth, there is a need to upgrade basic infrastructure to improve the competiveness of Indian companies by reducing logistics costs. The port sector requires huge investments for the construction of jetties, berths, deepening of channels, procurement, replacement and/or upgradation of port equipment and improvement in hinterland/last-mile connectivity. The lack of infrastructure for the evacuation of cargo at Indian ports has led to a suboptimal transport modal mix.
JNPT has firmed up expansion plans with various domestic and international players lining up huge investments in the coming two years and this will generate large-scale employment opportunities.
According to traffic projections in the Maritime Agenda 2010-2020 and considering the country’s economic growth, Rs 2,774 billion of investments are required to triple capacity at Indian ports to 3 bt, with the
capability of handling a projected traffic of 2.5 bt. Of this, major ports under the central government need to invest Rs 1,095 billion to reach a capacity of 1.46 bt for 1.21 bt of cargo, with the private sector share projected at about 66 per cent. Non-major ports need Rs 1,679 billion to reach 1.67 bt capacity for handling 1.28 bt of cargo, almost all of it coming from the private sector. These targets may get delayed because of the recent global slowdown.
Cyril C. George
The worldwide economic slowdown and recession has been reflected in the slow growth of containerised traffic the world over. The creation of port infrastructure is the key to economic growth. To improve efficiency and sustainability, the government has embarked on the Make in India initiative. With the development of new ports, there will be capacity addition and with the upgradation of infrastructure at existing ports, the efficiency and
service levels of ports would improve, to the betterment of trade. With the increased movement of containerised cargo through
the development of coastal shipping and the completion of road/rail connectivity projects between ports and the hinterland, the evacuation of cargo to and from ports would be much faster.
The improvement of coastal infrastructure will immensely benefit not only coastal cargo movement but also cruise tourism. The FDI route for infrastructure improvements would further fuel the growth of coastal shipping in India. The creation of IPRCL too, would improve connectivity of ports with the hinterland. Initiatives for “Universities at Sea” would pave way for maritime research and sustainable development.
Captain B.V.J.K. Sharma
The first-of-its-kind Maritime India Summit recently organised by the MoS resulted in business agreements worth investments of
Rs 829.05 billion and participation by 42 countries. The summit also showcased around 240 projects which presented investment opportunities for the next five years.
The MoS has established an investment facilitation cell under the Indian Ports Association to follow up on these opportunities and ensure that the announcements and intent expressed during the summit materialise into actual projects and investments.
The MoS has set a target of creating port capacity of over 3,130 mt by 2020 to handle around 2,500 mt of cargo, of which nearly 50 per cent would be driven by non-major or private ports. By 2016-17, cargo traffic at major ports is expected to rise to 943.1 mt from 581.3 mt in 2014-15 and cargo traffic at non-major ports to grow to 815.2 mt from 471.2 mt in 2014-15.
The government is forming policies and creating opportunities. It is time to expect the unexpected and innovate. Initiatives such as the dedicated freight corridors, digitisation, Sagarmala, the implementation of the goods and service tax and Make in India will give a further boost to the creation of world-class infrastructure and drive economic growth through port-led development.
“The overall exim traffic may continue to grow, though at a modest rate with
slight movement in global trade projections, while the Make in India initiative
and Sagarmala may have a long-term positive effect on port traffic.”
Biswanath Bhattacharya, Partner, Infrastructure and Government Services, KPMG in India
“To ensure the success of the port sector in the country, we need coordinated
efforts across various infrastructure departments at the central and
state levels to address infrastructure development and connectivity issues.”
Anil Diggikar, Chairman, Jawaharlal Nehru Port Trust
“Sagarmala also involves the creation of CEZs in the immediate vicinity of
ports. By doing so, the port and the manufacturing unit will benefit immensely,
leading to the economic development of the region.”
Cyril C. George, Chairman, Chennai Port Trust
“Over the years we have seen that the trend has been towards substantial
growth in traffic volumes at private ports due to greater efficiency, deeper
draught and competitive tariff structures.”
Captain B.V.J.K. Sharma, Joint Managing Director and Chief Executive Officer, JSW Infrastructure Limited