The past few years have been significant for the maritime sector, which has benefited from the government’s strong focus on port-led development. The outlook for the sector remains positive owing to a plethora of initiatives taken. Sagarmala, the flagship programme of the Ministry of Shipping (MoS), has also generated a lot of optimism. The inland water transport (IWT), costal shipping and domestic shipbuilding segments also received their share of attention. Going forward, issues related to hinterland connectivity, limited space around the port, insufficient draught and lack of financing options need to be addressed. Industry experts share their views on recent developments and the sector outlook…
What has been the progress in the port sector in the past year?
With a coastline of over 7,500 km comprising 13 major and over 200 minor ports, India has a huge competitive advantage in the port sector. During 2018-19, the major ports, with a capacity of 1,477 million tonnes (mt), handled 699.05 mt of cargo traffic. The MoS has set a target of 3,130 mt of cargo capacity at the major ports by 2020, in line with the Maritime Agenda 2010-20.
Over the past few years, the sector witnessed a shift in cargo handling from the major to non-major ports, with the latter handling approximately 45 per cent of the cargo traffic. Cargo traffic at non-major ports grew consistently at a compound annual growth rate (CAGR) of 10 per cent between 2006-07 and 2017-18, as compared to 3 per cent at the major ports.
Government initiatives, increased private participation, development of port-based special economic zones and capacity addition are some of the key trends taking place in the port sector.
Sanjay K. Mehta
The government has accorded the highest priority to the expansion of port capacity with the implementation of well-intended programmes and projects – Sagarmala, Project Unnati, etc. The 12 major ports recorded 2.9 per cent growth in cargo handling at 699.04 mt during 2018-19 as compared to 679.36 mt during 2017-18, registering an overall CAGR of 2.74 per cent from 2007-08 to 2018-19. The growth at these ports was driven mainly by higher coal handling, fertilisers and container traffic.
Non-major ports are evolving faster than the major ports with state maritime boards facilitating greater private participation. The contribution of non-major ports to total traffic rose from 42 per cent in 2017-18 to 45 per cent in 2018-19 (up to September 2018).
The major ports handled 699.05 mt of cargo during 2018-19, as against 679.37 mt during 2017-18. Port-wise, the highest growth was recorded at Kamarajar port (13.31 per cent), followed by the Kolkata (10.06 per cent) and Cochin (9.9 per cent) ports. This was mainly due to an increase in traffic volumes of coal, petroleum, oil and lubricants (POL) and containers. The five ports handling the highest amount of cargo – Deendayal, Paradip, the Jawaharlal Nehru Port Trust, Visakhapatnam and Kolkata (including Haldia) – handled around 60 per cent of the total traffic handled by major ports.
In terms of commodities, POL, containers and coal accounted for around three-fourths of the total cargo. While most of the commodities registered positive growth, a decline was witnessed in iron ore and fertiliser raw material traffic. Also, the major ports have improved their efficiency levels and capacities. The average turnaround time improved from 64.43 hours during 2017-18 to 59.93 hours during 2018-19 (up to December 2018). The major ports further added 62.9 million tonnes per annum (mtpa) of capacity during 2018-19, thus taking the total capacity to 1,514.09 mtpa at the end of 2018-19.
Paradip port achieved the highest annual traffic throughput of 109.27 mt during 2018-19, as compared to 102.01 mt during 2017-18, a growth of 7.12 per cent. Month-wise, the port handled the highest traffic of 10.55 mt in March 2019. In terms of efficiency, the berth day output at the port improved from 24,810 mt to 26,197 mt, a growth of 5.59 per cent. Also, the average turnaround time improved from 79.48 hours to 60.35 hours during 2018-19.
The Paradip Port Trust (PPT) has taken a number of initiatives to improve port performance. Key among these are the introduction of a second lane at gate no. 2 of the port; commencement of barge operations, which provides a fictitious berth for conventional loading/unloading of vessels, saves demurrage to the customer and generates additional revenue for PPT; installation of hoppers in the conveyor system of the mechanised coal handling plant; etc.
PPT is also undertaking projects to increase its cargo handling capacity. These include development of a new iron ore berth for handling iron ore exports on a build-operate-transfer (BOT) basis (Rs 7.5 billion, 10 mtpa); development of a new coal berth for handling coal imports (Rs 6.56 billion, 10 mtpa); liquefied petroleum gas (LPG) terminal at the south oil jetty (Rs 6.9 billion, 0.75 mtpa); and deepening and optimisation of inner harbour facilities including construction of the western dock to handle Capesize vessels (Rs 30.25 billion, 25 mtpa).
What has been the impact of the key initiatives taken by the government?
Under Sagarmala, 189 projects including development of six new mega ports and approximately $22 billion of investments by 2035 have been proposed. Under Project Unnati, 116 initiatives were identified for improvement in operations of major ports. Of these, 91 had been implemented by November 2018. Other initiatives include 100 per cent foreign direct investment (FDI) under the automatic route for port and harbour construction and maintenance projects, and a 10-year tax holiday to companies that develop, maintain and operate ports, inland waterways and inland ports.
Port-led development, port modernisation, capacity addition, higher port efficiency, reduction in turnaround time, improvement in last- mile connectivity and attracting foreign investments have been the focus of a plethora of government initiatives.
The impact of these initiatives is becoming increasingly visible – five times more growth in traffic at major ports in 2014-18 as compared to 2010-14, threefold increase in net profit of the major ports in 2014-18 and reduction in turnaround time at the major ports from 94 hours to 64 hours during the same period.
Sanjay K. Mehta
As per a 2019 World Bank report on ease of doing business, India has taken a huge leap of 23 ranks from being 100th in 2017-18 to 77th in 2018-19 indicating that it is continuing its steady shift towards global standards. Towards facilitating ease of doing business, the shipping ministry has identified various parameters for reducing dwell time and transaction costs at the major ports that include elimination of manual forms, accommodation for laboratories to participating government agencies, direct port delivery, installation of container scanners, e-delivery orders, radio frequency identification-based gate automation systems, etc.
The year 2018 has been a significant one owing to a number of progressive policy interventions such as amendment of the model concession agreement, revision of tariff guidelines and various steps taken towards facilitating ease of doing business. The major ports have kept up their impressive performance of the past four years in terms of capacity addition and improvement of efficiency parameters.
The year was especially remarkable for developments in the IWT segment. The key developments include inauguration of the multimodal terminal on the Ganga river at Varanasi; start of the first-ever post-Independence movement of container cargo from Kolkata to Varanasi; and the commencement of integrated cargo movement from Kahalgaon in Bihar to Pandu in Assam across three waterways – the Ganga, Brahmaputra and the Indo-Bangladesh protocol route.
Cruise tourism was another area with important developments, for instance, the inauguration of a modernised international cruise terminal at Chennai port; launch of a Mumbai-Goa cruise service; and the setting up of the Centre of Excellence in Maritime and Shipbuilding at Visakhapatnam and Mumbai, the National Technology Centre for Ports, Waterways and Coasts at the Indian Institute of Technology Madras; and the decision to set up multiskill development centres at all the major ports under Sagarmala. The government has also allowed FDI of up to 100 per cent under the automatic route for projects related to the construction and maintenance of ports and harbours.
The government has not only been focusing on enhancing the capacity and efficiency of the major ports through various public-private partnership projects, it has also partnered with multiple international agencies to take up benchmarking and other topical studies to come up with specific solutions for various issues hindering progress in the sector.
The government has taken multiple steps for promoting coastal shipping. The MoS has relaxed rules under Sections 406 and 407 for easier licensing requirements for chartering vessels for coastal movement of containers, agricultural commodities and fertilisers. The coastal berth scheme has been extended to March 2020, its scope has been expanded and it has been integrated with the Sagarmala programme. A total of 59 projects at a cost of Rs 26.46 billion have been taken up for financial assistance under the scheme. Of these, 41 projects worth Rs 15.85 billion have already been sanctioned for total financial assistance of Rs 6.33 billion, while the remaining 18 projects are at various stages of development.
Also, the practice of ports investing their surplus funds solely in fixed deposits with public sector banks was reviewed in light of the guidelines on investment of provident fund/pension fund/surplus funds issued by the Ministry of Labour and Employment and the Department of Public Enterprises, and revised guidelines were issued by the MoS to all the major ports.
The projects undertaken at Paradip port under the Sagarmala programme involve development of a deep draught iron ore export berth (Rs 7.4 billion, 10 mtpa), clean cargo berth (Rs 4.31 billion, 5 mtpa), mechanisation of the Eastern Quay-3 berths (Rs 14.38 billion, 30 mtpa), a new deep draught coal import berth (Rs 6.56 billion, 10 mtpa), capital dredging on a BOT basis (Rs 862 million), development of rail connectivity for BOT berths (Rs 797.6 million), an LPG terminal at the south oil jetty (Rs 6.9 billion) and a smart industrial port city (Rs 5.14 billion).
What are the key challenges that remain unaddressed?
While port capacity needs to be increased to cater to the growing cargo traffic, at the same time, supplementary port services such as operations and maintenance, dredging and harbouring also need to grow at a similar pace. With an increase in the number of ships handled at ports, the demand for ship repair services is expected to rise, and this, in turn, will increase the demand for dry docks for ship repairs. In order to cater to growing demand for ship repairs, new dry docks will need to be built and ancillary repair facilities will need to be set up. While turnaround time at ports has witnessed a decline, India (>2 days) is still behind leading international ports – Shanghai (0.83 days) and Singapore (1.33 days). Archaic IT systems and outdated navigational aids are also due for a much-needed upgrade.
Sanjay K. Mehta
The challenges faced at the existing ports include internal connectivity issues; infrastructural bottlenecks within the port area; inefficiency and congestion due to hindrance in hinterland connectivity through rail, road, highways, coastal shipping and inland waterways; limitations in the storage area; limited usage of IT/cutting-edge automation; difficulty in the availability of modern equipment; high costs for maintaining deep draught berths; etc. Also, implementing port projects, is in itself a major issue, as these projects, by their very nature, have long gestation periods and therefore the private sector has difficulty in accessing financing from banks and other financial institutions.
The key challenge that needs to be addressed is inadequate connectivity with the hinterland. Assessing the situation at New Mangalore port, four national highways (NHs) connect the port to the rest of the state, three of which, NH-75, NH-275 and NH-169, pass through the Western Ghats, making transportation through them very slow and risk-prone. Every year, these highways are closed for weeks during and after the monsoons, resulting in uncertainty and business risks for export-import companies in the hinterland. The transportation costs are also high due to the higher risk of moving goods through the ghat roads. Due to this, the majority of the exporters and importers in Bengaluru, Mysuru and Nanjangud use ports located in the states of Tamil Nadu and Andhra Pradesh, even if it is costlier for them to use these ports. Besides, lack of sufficient space in and around ports, insufficient draught and inadequate dredging capacity are some of the issues haunting a few ports.
The upcoming rail line connecting Haridaspur and Paradip, being developed in joint venture with Rail Vikas Nigam Limited, has been long overdue. Upon completion, the project is expected to result in a considerable reduction in the distance from Bansapani to Paradip, besides reducing the freight cost by 50 per cent.
Another delayed project is the six-laning of NH-53 being undertaken by the National Highways Authority of India. Upon completion, the project is expected to reduce the vehicular congestion and improve connectivity to the port.
What is the sector outlook for the next one-two years?
In the years to come, growth in India’s external trade, in particular rising crude imports, will benefit Indian ports. The MoS aims to create port capacity of 3,500 mt to handle the rising cargo traffic, which is expected to be approximately 2,500 mt by 2025. Investments in major ports are estimated to be approximately $18.6 billion, while the non-major ports are expected to attract a larger sum of about $28.5 billion.
Expanding cargo capacity, rising cargo traffic, increasing private participation and growing investments complemented by multiple government initiatives, all point towards a bright future for the port sector.
Sanjay K. Mehta
The outlook for the sector looks bright and the government, together with strong private sector participation and investment, will strive to bring in positive changes. With increasing private sector participation in establishing non-major ports, cargo traffic handled by them will keep on increasing and could outpace cargo traffic at the major ports. Also, the rising demand for port infrastructure due to growing imports (crude and coal) and containerisation and the limited capacity at the major ports will provide opportunities to the private ports to handle the extra demand.
There will be increased emphasis on “terminalisation”, that is, focus on terminals that deal with a particular type of cargo. This will be useful for handling specific cargo such as liquefied natural gas that requires specific equipment and entails high capital costs. Captive cargo terminals will also increase as a result. To promote private investment, the government has been working on reforming the organisational model of seaports from a “service port” model where the port authority offers all the services to a “landlord port” model where the port authority acts as a regulator and landlord while port operations are carried out by private companies and this trend will continue.
Operations and maintenance services such as pilotage, dredging, harbouring and provision of marine assets (such as barges and dredgers) are expected to increase in the coming years and private players will play a major role in providing these services.
The port sector’s outlook, in terms of traffic handled, is linked to the performance of the economy – both impact each other in an intricate way. Based on recent trends, the sector should see mild positive growth in the coming years. In terms of capacity as well as efficiency, the sector will definitely benefit from various infrastructure development projects, most of which are either under implementation or planned for the near future.
In order to cater to the projected traffic of 2,500 mtpa by 2025, a roadmap has been created to increase total port capacity to over 3,000 mtpa and master plans have been finalised for all the major ports. From the port master plans, 108 port capacity expansion projects with a cost of Rs 677.89 billion have been identified for implementation over the next 20 years. Of these 108 projects, 22 projects with a cost of Rs 152.44 billion have already been completed and 37 projects worth Rs 142.75 billion have been taken up for implementation.
Once its core strategic projects are realised (deep draught new berths for handling large Capesize vessels and mechanisation of existing berths), Paradip port has the potential to become one the leading bulk ports globally. It is also possible to develop the port as a leading liquid bulk hub in the east, considering the refinery expansion plans of Indian Oil Corporation Limited and the storage terminals of Numaligarh Refinery Limited. Further, Paradip port can be developed as a leading distribution centre for landlocked regions for containers, especially for the northern and central regions.
“Cargo traffic at non-major ports grew consistently at a CAGR of 10 per cent between 2006-07 and 2017-18. During the same period, cargo traffic at the major ports grew at approximately 3 per cent.” Jaideep Ghosh, Partner and Chief Executive Officer, Management Consulting; National Head, Transport, Leisure & Sports Sector, KPMG
“The government has accorded the highest priority to the expansion of port capacity with the implementation of well-intended programmes and projects – Sagarmala, Project Unnati, etc.”
Sanjay K. Mehta, Chairman, Deendayal Port Trust
“The port sector outlook, in terms of traffic handled, is linked to the performance of the economy – both impact each other in an intricate way. Based upon recent trends, the sector should see mild positive growth in the coming years.” A.V. Ramana, Chairman, New Mangalore Port Trust
“Once the port’s core strategic projects are realised (deep draught new berths for handling large Capesize vessels and mechanisation of existing berths), Paradip port has the potential to become one the leading bulk ports globally.” Rinkesh Roy, Chairman, Paradip Port Trust