Over the past few years, the Indian port sector has seen a number of regulatory changes. The scale and scope of port terminals has also expanded. On the western as well as eastern coast, several ports have the capacity of accommodating the largest ships. India is gradually positioning itself to become a viable transhipment location. However, the sector still faces several issues and challenges.
At present, the demand and supply scenario with regard to the Indian port sector is quite balanced and ample capacity is available. However, in comparison to China, India handles only one-eighth of the cargo. This shows that there is a lot of scope for growth in the future. During the past six months, the new ports have also witnessed a pickup in growth.
Substantial improvements have been witnessed in draught levels over the past two decades. Vessel sizes are also increasing. However, this has put a lot of pressure on the existing infrastructure. As a result, port operators are deploying various technology and mechanisation solutions. With regard to berths, cranes have been automated, thereby enhancing productivity by 20-30 per cent. With respect to reefer cargo, technology solutions have been brought in providing real-time access to cargo and triggering an alarm in case of any disturbances. Further, several port operators have affixed their trucks with radio frequency identification (RFID) tags. Also, optical sensors and high resolution cameras have been installed on the gates. This has helped in reducing the transition time for trucks. In addition, electronic rubber-tyred gantries (RTGs) are being used instead of diesel RTGs, thereby, reducing the carbon footprint.
Further, several improvements have been brought about in mechanisation, connectivity and storage capacity creation, which will help in increasing efficiency and reducing the cost of operations.
Issues and challenges
In the short term, over capacity is the biggest concern facing the container shipping and port industry. Further, technological and digital penetration with regard to port handling and cargo handling systems pose a challenge as well as an opportunity. There is also a need to bridge the divide between government-owned and privately owned ports. Cost subsidisation offered by state ports is also a major impediment to the healthy growth of the port sector.
In India, the cost of capital continues to be very high as compared to international standards. Though the cost has come down by 200-250 basis points in the past four to five years, there is scope for it to decrease further by another 200-300 basis points. This will help in increasing the competitiveness of India’s port sector and reduce the cost of handling.
With the availability of new technologies, the use of drones and electric vehicles, and alternative sources of energy such as wind and solar, the Indian port sector needs to take cognisance of these and adapt accordingly. For doing this, a lot of flexibility is required as the port sector is still regulated to a large extent.
The government is laying greater emphasis on promoting the ease of doing business, and the modernisation and mechanisation of ports. Greenfield port construction takes up to 10 years as various land and environmental clearances have to be obtained. Therefore, capacity enhancement at existing ports is a more suitable option. Capacity consolidation and faster evacuation processes are urgently required.
A major impediment to increasing the efficiency of the port sector is the huge amount of paperwork and time required to move cargo, thereby increasing logistics costs. To address these issues, the Ministry of Shipping has envisaged the creation of port community systems. These are expected to be operational in six ports by the end of the year and will be gradually extended to all the major ports. This move will help bring in greater transparency, enhance the efficiency of port operations and the ease of doing business and reduce logistics costs.
Linkages through rail and road connectivity still remain a big issue. However, with various government initiatives such as the Sagarmala programme, it is expected that within the next three to four years linkages will be streamlined and the movement as well as evacuation of cargo to and from ports will become much easier. Further, the creation of a dedicated fund for last-mile connectivity should be looked at.
The government has also taken cognisance of the shrinking appetite for public-private partnerships in the sector and is working towards addressing this issue. While the amendments in the model concession agreement (MCA) are a positive step, the old concession agreements need to be revisited as well. Essentially, more flexibility, easing of exit options for developers and friendlier terms and conditions for lenders are required to ensure that financial closures for projects are achieved at a faster pace.
Financing is another key challenge facing the sector. Huge investments are needed to improve the current infrastructure. The cost of funding needs to come down and new and cheaper sources of funding need to be explored. As most of the players involved in port projects are foreign exchange earners, there exists a possibility of financing some of these projects through bonds.
The government also needs to establish a level operating field for the major port operators as well as non-major port operators. The discrepancies with regard to the traffic regime need to be done away with. The lack of specialised and skilled manpower is another key concern in the sector and adequate training needs to be provided.
Earlier, the major ports did not really act in the spirit of a “partner”, but the scenario has changed somewhat. It is essential for the concession granter to play its role and the concessionaire must reciprocate by fulfilling its responsibilities in a timely manner as well as taking acountability for its deliverables, together with penalties, if and as applicable to ensure that the project gets completed on time.
The way forward
In the medium and long term, Indian ports have the potential to be ranked amongst the top ports globally, provided that the building blocks contributing to the growth of the sector are put in place. On the regulatory front, the changes in the MCA and other policy initiatives will help in boosting investor sentiment and reducing the long-term risks associated with the sector. Further, the Central Port Authorities Act, 2016, is likely to usher in changes that would allow the incumbents to take investment decisions at major ports with greater clarity. Also, in order to attract more cargo, operators should focus on providing modernised and mechanised facilities and services at competitive rates. Several challenges still remain; the actual materialisation of plans could take time, given the time-consuming legislative procedures required for efficient collaboration between the central and state governments. w
Based on a panel discussion among Rajiv Agarwal, MD and CEO, Essar Ports; Saibal De, Director and CEO, IL&FS Maritime Infrastructure Company; Captain Ravinder Singh Johal, CEO, Nhava Sheva ICT (DP World); and Krishna B. Kotak, Chairman, J.M. Baxi and Company, at a recent India Infrastructure conference