Commodity Analysis: Trends in dry, LNG and container cargo segments

Trends in dry, LNG and container cargo segments

Bulk and container cargo traffic at Indian ports is steadily increasing. To meet the growing volumes, capacity augmentation projects have been planned at a number of ports. The launch of the Sagarmala programme has provided a further impetus to port development, modernisation and capacity creation. This, in turn, is likely to further drive demand for commodities such as dry and liquid bulk cargo as well as containers…

A look at the trends in traffic and capacity and the future outlook for these commodities…

Liquefied natural gas

The share of regasified liquefied natural gas (R-LNG) in the total natural gas consumption in the country has been rising steadily since 2011, primarily due to an increase in regasification capacity and a fall in gas prices.

At present, India has four operational liquefied natural gas (LNG) import terminals, at Dahej, Kochi, Dabhol and Hazira, which have an aggregate regasification capacity of 30 million tonnes per annum (mtpa). The existing LNG capacity is primarily concentrated on the west coast due to pipeline network availability.

Of these terminals, Petronet LNG Limited’s (PLL) Dahej terminal has the maximum capacity. Recently, in October 2016, PLL completed the Phase IIIA expansion at the terminal, increasing the capacity at its facility from 10 mtpa to 15 mtpa. Further capacity expansion to 17.5 mtpa is under way, and is expected to be completed by December 2019. The contract for vaporisers and the regassification unit has already been awarded. Most of the capacity (till the Phase IV expansion to 17.5 mtpa) has been booked by offtakers such as GAIL (India) Limited, Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, Gujarat State Petroleum Corporation and Torrent Energy Limited. In the first half of fiscal year 2016-17, the Dahej terminal recorded a capacity utilisation of around 137 per cent, driven by an increase in long-term LNG volumes.

On the other hand, another PLL-operated terminal, Kochi, had a capacity utilisation rate of only 5 per cent in the first half of 2016-17. This low utilisation was due to a lack of pipeline connectivity. Phase I of the pipeline network, from Kochi to Koottanad, has been completed, while Phase II, from Koottanad to Mangalore and from Kochi to Bengaluru, is facing issues as the pipeline passes through densely populated areas and agricultural fields.

The capacity utilisation at Ratnagiri Gas and Power Private Limited’s Dabhol terminal has been 60 per cent owing to a lack of breakwater, due to which the terminal cannot operate during the monsoon months.

The Hazira terminal has been operating at a high capacity utilisation in the past one and a half years owing to low spot prices of LNG.

Further, another six LNG terminals with an aggregate capacity of 31 mtpa and entailing an investment of Rs 327.51 billion are coming up at Mundra, Ennore, Jaigarh, Dhamra, Kakinada and Jafrabad. Demand from the fertiliser and city gas distribution segments will be a key factor in the adequate utilisation of the upcoming LNG terminals.

Overall, pipeline connectivity remains a key issue for existing and new LNG terminals. Ports with proximity to gas transmission networks and a large hinterland will be the most sought after. Capacity utilisation of upcoming terminals may not be high (unlike PLL’s Dahej terminal) and could be low as compared to global averages, primarily due to relatively high anticipated capacity additions and subdued growth in R-LNG consumption.

As compared to onshore LNG terminals, floating storage regasification units offer portability, are cost-effective and attractive for areas with uncertain economic growth or political instability, and are constructed in less time.

Bulk cargo

The total bulk cargo handled at Indian ports stood at around 899 million tonnes (mt) in 2015-16, as compared to 750 mt in 2010-11, a compound annual growth rate (CAGR) of about 4 per cent. This increase was led by non-major ports, where cargo traffic increased at a CAGR of 4 per cent between 2010-11 and 2015-16, compared to a 1 per cent increase for major ports. In 2015-16, major and non-major ports accounted for a share of 56 per cent and 44 per cent, respectively, in the total bulk cargo traffic handled at Indian ports.

With the increase in cargo traffic, capacity has been augmented at both major and non-major ports. Overall capacity increased from 1,092 mt in 2010-11 to 1,716 mt in 2015-16. However, capacity utilisation declined, as the increase in demand did not keep pace with capacity additions. Capacity utilisation at major and non-major ports was 68 per cent and 70 per cent respectively in 2010-11, and fell to 50 per cent and 55 per cent respectively in 2015-16.

In terms of commodities, coal traffic grew at a CAGR of 16 per cent from 2009-10 to 2015-16, accounting for a 30 per cent share in total cargo traffic in 2015-16. However, the share of iron ore declined from 20 per cent in 2009-10 to only 4 per cent in 2015-16. While petroleum, oil and lubricants continued to have the maximum share in the total bulk cargo traffic, it declined slightly from 44 per cent in 2009-10 to 42 per cent in 2015-16.

With regard to coastal bulk traffic, the share of major ports increased from 23 per cent to 26 per cent in 2015-16, while it fell at non-major ports from 77 per cent to 74 per cent. The decline in the share of coastal traffic at non-major ports was due to the higher growth in export-import (exim) traffic.

Overall, while traffic increased at major ports, the number of vessels declined marginally due to a shift towards larger vessels. The number of vessels declined from 17,073 in 2010-11 to 16,445 in 2015-16, while deadweight tonnage of the vessels increased to 710 mt from 674 mt.

Bulk cargo traffic is expected to grow at a CAGR of 4 per cent to reach 973 mt by 2020 and further by a CAGR of 9 per cent between 2020 and 2025 to reach 1,486 mt. This growth will largely be driven by coal traffic. The share of the east coast in the total bulk cargo traffic is expected to increase to 70 per cent from the present 60 per cent, once the capacity under construction comes online.

Container cargo

In 2015-16, container capacity at Indian ports stood at 20.25 million twenty-foot equivalent units (TEUs), while container traffic stood at 12 million TEUs, the latter recording a growth of 6.1 per cent over the previous year. The 12 major ports cumulatively handled 8.2 million TEUs in 2015-16, as compared to 7.96 million TEUs in 2014-15.

Of the total container traffic handled in 2015-16, about 75 per cent was handled on the west coast with the Jawaharlal Nehru Port Trust and Mundra port handling 4.8 million TEUs and 3 million TEUs respectively. There is significant dependence on roads for the movement of container traffic, with around 62 per cent of the traffic being transported by road, despite the fact that this mode is saturated and has a high cost of operation.

Therefore, the share of coastal shipping, which is a cheaper and environment-friendly mode of transport, needs to be increased. Some of the benefits available to coastal shipping are a 40 per cent discount on vessel-related charges and cargo-related charges at Indian major ports; bunker duty exemption to vessels carrying a mix of exim, coastal and empty containers; parity in income tax regulations for Indian seafarers; increased berthing capacity at major ports; etc. However, the lack of first-mile and last-mile connectivity and the taxes imposed on coastal shipping increase the cost of transportation through this mode.

Under the Sagarmala programme, $10 billion has been proposed to be spent on the development of the coastline and ports. The development of coastal economic zones, coastal roads, additional coastal shipping capacity and inland waterways is also under the purview of the programme.

Growing container volumes will drive demand for inland container depots (ICDs). ICDs are coming up at Ludhiana, the National Capital Region, Nagpur, Hyderabad, Bengaluru and Ahmedabad. At most of these locations, new facilities will be developed on over 100 acres of land.

Some of the issues faced by the container industry are high rail transport costs, route rationalisation, and a hub-and-spoke model with a restriction of 100 km, high wharfage by maritime boards, and a lack of port-rail connectivity.

The need of the hour for the container industry is a simple policy for attracting re-export cargo as in Dubai, Singapore and Vietnam; formalising cabotage law of line boxes on rail for domestic cargo parcel bookings; match-back bulk cargo from/to gateway ports for metric tonne inventory repositioning; relaxing railways carriage norms; etc.

Based on presentations by Ravichandran, Senior Vice-President and Co-Head, Corporate Ratings, ICRA Limited; Vivek Sheoran, Manager, Capital Projects and Infrastructure Advisory, PricewaterhouseCoopers Private Limited; Captain Sriram Ravi Chander, Country Head, Ports and Coastal Shipping, Continental Warehousing Corporation (Nhava Seva), at a recent India Infrastructure conference