Miles to Go: Modernisation crucial to make India a maritime hub

Modernisation crucial to make India a maritime hub

Jaideep Ghosh, Partner and National Head, Transport, Leisure and Sports, and Nitu Singh, Manager, Markets, KPMG in India

The ports and shipping sector in India has the capability to emerge as an “engine of growth” for the economy. It helps secure raw materials/goods that it requires for the development of the nation at competitive rates.

At present, India is one of the largest maritime nations and is strategically located on important global shipping routes, with a coastline of about 7,517 km. The country’s maritime transport handles around 70 per cent of trade in value terms and 95 per cent by volume. India has 12 major and 205 non-major/intermediate ports. Jawaharlal Nehru Port Trust (JNPT) is the largest major port, while Mundra in Gujarat is the largest private cargo port in the country. All the major ports in the country together handled 679.4 million tonnes (mt) of cargo during 2017-18 compared to 648.4 mt a year ago; thereby registering a growth of 4.8 per cent. The sector is showing growth but still facing many challenges, as discussed in the subsequent section.

Key challenges

We have to accept the fact that India is not a commodity trade-led economy like China, Indonesia, Brazil and South Africa. This has restricted the development of the ports and shipping sector. The country’s total containerised cargo volume handled by major ports was about 8.5 million twenty-foot equivalent units (TEUs), whereas the largest container port in China, Shanghai handled 36.5 million TEUs alone in 2017. India is facing huge trade imbalances, and aims at minimising its import of fossil fuels over the years and has already initiated policies regulating the import of thermal coal used for power plants. This could lead to capacity idling at dedicated ports for handling bulk mineral oil and coal. Restriction by certain states on the export of mineral ores could also hamper export of certain commodities on regional port facilities, leading to capacity remaining unused. In addition to the above bottlenecks, this sector has been facing many developmental, procedure-related and policy-linked challenges, which are discussed in detail below:

  • Manifold agency model: Even though India has quite a wide-ranging regulatory framework for ports, its effectiveness and efficiency needs to improve. One of the foremost issues is that major and non-major ports fall under diverse administrations, which make the coordination between ports difficult.
  • Land acquisition: Land acquisition is always challenging in the country. Getting environmental clearances could often be a challenge for non-major ports.
  • Infrastructure: Poor connectivity of major ports with industries by rail or roads has been a major challenge. This leads to time and cost overruns. Even though the National Highways Authority of India has given a major push to port connectivity, many critical projects suffer from implementation delays. The railways network also needs to be improved significantly.
  • Efficiency: Barring a few exceptions like JNPT, the dock capacity of most of the ports is substantially low, compared to top global ports. Drafts are again a key limitation in the country because terminals and ports cannot cater to vessels beyond Panamax (draft over 13 metres) size, which are increasingly ruling global trade. The average ship turnaround time at the country’s major ports has come down from 2.61 days to 2.08 days in the last five years, but they continue to trail the turnaround time benchmarks at major global ports, such as Port Klang, Singapore and Rotterdam, where it is between one and two days on an average, sometimes even less than a day.
  • Labour: Labour issues pose a major challenge in some of the older ports like excess manpower, lack of adequate training, deteriorating manpower quality, opposition to reforms and various anti-competitive practices. The 12 major ports in the country employ around 35,000 employees as per the last reported data provided by the government. In contrast, the Port of Rotterdam, employs 1,100 people only but handles as much as 70 per cent of the cargo handled by all major Indian ports.
  • Technology: Inconsistent availability of the equipment to handle large volumes, deficient dredging capabilities, outdated navigational aids and IT systems, lack of proper equipment handling training and technical expertise, limited mechanisation, procedural bottlenecks and lack of scale, deep draft and other facilities at various ports in the country are some of the challenges faced in this sector. The Rotterdam port, ranked among the top 10 ports in the world, has automation with the least possible human intervention, which ensures smooth, fast and efficient movement of goods.

Opportunities in the sector

The government is supporting this sector through various initiatives like launching the “Sagarmala Programme” in 2017. Under this programme, 415 projects have been identified (at an estimated investment of approximately Rs 7,985 billion), across port modernisation and new port development, port connectivity enhancement, port-linked industrialisation and coastal community development for a phase-wise implementation over a period up to 2035. Under this programme, six new ports will be developed in the country – Sagar Island (West Bengal), Paradip Outer Harbour (Odisha), Sirkazhi and Enayam (Tamil Nadu), Belikeri (Karnataka) and Vadhavan (Maharashtra).

The government has allowed foreign direct investment of up to 100 per cent under the automatic route for port and harbour construction and maintenance projects. Also, it has facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports. It is said that “every adversity throws up some opportunity”, which is true in the case of this sector too. Some of the many opportunities are given below:

  • Expected increase in cargo traffic: The average growth rate was 1.4 per cent between 2009-10 and 2013-14. This increased to 14.2 per cent during 2014-15 and 2017-18. The cargo traffic in the country is expected to grow and is said to reach 2,500 mt by 2024-25 against 1,072.23 mt in 2015-16 as the size of parcels gets bigger. More players will start using coastal movement of cargo rather than depending on the road and rail network for the shipment of goods within the country.
  • Capex in refinery expansion: The country’s petroleum refining capacity currently stands at 247 million metric tonnes per annum and the government plans to double the same in order to meet its domestic demand as well as enhance its exports. Petroleum and its products account for almost 27 per cent of the import-export volume of the country. From the increased refining capacity, especially petroleum exports are expected to cater to the demand from countries like Bhutan, Nepal, Myanmar, Bangladesh and Sri Lanka. We expect the petroleum, oil and lubricants segment to support the growth of cargo capacity handled by ports. The increase in the country’s refining capacity will help the offshore shipping lines as demand for their services will pick up. With the commissioning of large domestic refining capacities, imports are expected to go up in the future. In this way, the shipping players, operating in the country will benefit.
  • “Make in India” initiative: The “Make in India” initiative offers great opportunities in this sector, especially in the shipbuilding and ship repair industry and will try to help the industry in meeting all vessel requirements within the country. The government’s shipbuilding policy encourages domestic players to bag foreign orders more aggressively. The Indian Navy is also giving a strong push to this initiative because it tries for self-sufficiency in the production of warships. The country’s shipyards have also developed investment plans and accessed capital markets to play a significant role under this initiative.

The way forward

  • It is clear that the country’s ports and shipping sector is poised for a firm growth. Progress may be quicker if these key areas are addressed.
  • Immediate attention to infrastructure improvement: An efficient internal mode of transportation system is important for the success of ports and shipping sector. It helps in the movement of cargo across all modes – ship, rail and road. Almost 25 per cent of the country’s container cargo is transshipped through international transshipment ports due to the lack of infrastructure to handle larger vessels at the Indian ports. In 2013-14, approximately, 2.7 million TEUs of containers were transshipped at international ports like Colombo, Singapore and Klang, adding to the cost and resulting in the domestic port industry losing up to Rs 15 billion of revenue each year, on transshipment handling of cargo originating from and destined India. Transshipment also increases the logistics cost by Rs 5,000-Rs 6,000 per TEU for the trade, making it less competitive. Thus, the timely completion of various projects in the logistics chain is critical to meet the heavy traffic.
  • Exploring partnerships for technology and manpower with advanced maritime countries: The Indian maritime sector needs modernisation and upgradation. It should be always exploring advanced technologies, which help in lowering costs and delivering more for less. This may be possible through collaborations and partnerships with successful maritime clusters in the field of ship design, automation and technology. These collaborations can increase efficiency and improve competitiveness. The other key area where we could benefit from partnerships is training and development of manpower. This can introduce world-class manufacturing techniques and processes. Academicians may look at establishing university partnerships to encourage innovation, knowledge sharing and transfer. In this direction, the Centre of Excellence in Maritime and Shipbuilding is being set up in partnership with a multinational conglomerate and the Indian Register of Shipping at a cost of Rs 7.66 billion under the Ministry of Shipping.
  • Development of maritime clusters: These clusters usher in innovation, create employment opportunities and attract foreign investors. The government has identified two major maritime clusters in Tamil Nadu and Gujarat as they are successful in Japan and South Korea. These clusters will focus on developing shipbuilding and ancillary services, maritime services, promoting maritime tourism and marine products. Both the identified cluster locations can attract business and improve the overall economics for participants due to the manufacturing strength, size of the ports and synergies with other steel ancillaries in these states. We should nurture such clusters and encourage ancillary industries and more indigenous components. Such clusters are likely to encourage public-private partnerships, which will be a key enabler in attracting new technology, encouraging strategic alliances and enhancing investments.

To conclude, we can say that as India is on its way to becoming one of the key economies of the world, an energetic and strong maritime industry will play a major role from an economic as well as strategic point of view. The sector has many favourable factors for sustainable development, but eventually, it will depend on how the various participants leverage the opportunities available to them to transmute the sector into an engine of growth for the country. w

(The authors have acknowledged sourcing information from the Ministry of Shipping, Indian Ports Association, Press Information Bureau, Petroleum Planning and Analysis Cell, Basic Ports Statistics of India, India Brand Equity Foundation, ASSOCHAM, news articles, etc.)