Trends and Outlook

Sagarmala brings optimism, global trade recovery crucial

The maritime sector of every economy is dependent on global trade cycles and India is no exception. Global trade volume has shown signs of a decline, and this is being reflected in reduced cargo activity, lower shipping rates, etc. Year-on-year growth of world trade volume was 3.8 per cent in 2018-19 as compared to 5.4 per cent in the previous fiscal year. Meanwhile, year-on-year growth of Indian port traffic fell to 5.9 per cent in 2018-19 as compared to 6.6 per cent in 2017-18. Shipping companies have been struggling to cope with losses, while shipyards are on the verge of bankruptcy.

Notwithstanding global developments, which are outside India’s control, significant attempts have been made to improve the domestic operational performance metrics of the domestic ports and shipping sector. The government is taking a number of steps to resolve issues across the value chain. Project award and execution has picked up pace. Serious attempts are being made to address the disparities in tariff setting at major and non-major ports. A number of companies have started using coastal shipping and inland water transport (IWT) routes for movement of cargo following supportive policy measures. Though a number of issues related to land acquisition, clearances, financing, etc., still remain, government intent towards aiding sector growth is clearer and stronger.

Indian Infrastructure takes a look at key trends and outlook for the sector…

Key trends

  • Cargo traffic at Indian ports grew at a compound annual growth rate (CAGR) of 5 per cent between 2014-15 and 2018-19, to reach 1,278 million tonnes (mt). Of the total traffic, major and non-major ports accounted for a share of 55 per cent (699 mt) and 45 per cent (579 mt) respectively.
  •  During the five-year period 2014-15 to 2018-19, traffic at major and non-major ports witnessed a CAGR of 4.7 per cent and 5.3 per cent respectively. In terms of year-on-year growth, while major ports registered an increase of 2.9 per cent in 2018-19, the figure for non-major ports was much higher at 9.3 per cent. During the first four months (April-July) of the current fiscal year, total traffic at Indian ports stood at 436.12 mt, of which major and non-major ports accounted for a share of 54 per cent (236.18 mt) and 46 per cent (198.94 mt) respectively.
  • As of March 2019, capacity at the major ports stood at 1,514 million tonnes per annum (mtpa) while capacity utilisation was quite low at 46.17 per cent. Factors such as fall in global seaborne trade, ban on iron ore exports, etc., have increased the gap between the capacity available and traffic handled.
  • The 3Cs – coal, crude and containers – dominate the cargo composition at ports, with a share of 71 per cent at the major ports and 78 per cent at non-major ports respectively. In 2017-18, at both major and non-major ports, petroleum, oil and lubricants (POL) accounted for the highest share in total traffic, followed by coal for non-major ports and containers for the major ports. In the past five years, there have been significant changes in the commodity composition at the ports. Containers have been reporting strong activity due to increasing trade activity, while POL volume growth also continues following rising demand.
  • Under Sagarmala, the government’s flagship programme, as of May 2019, 334 projects have been initiated in 14 states and union territories. The highest number of projects are in Maharashtra and Tamil Nadu (75 projects each), followed by West Bengal (33) and Gujarat (32). Progress under the two components of port modernisation and port connectivity has been quite visible.
  • Investments made through the public-private partnership (PPP) mode in projects at the major ports during the past five years are quite considerable at Rs 391.87 billion. Of this, the Jawaharlal Nehru Port Trust (JNPT) alone accounted for 35 per cent of the total private investment at the major ports, followed by the Kolkata and Paradip ports at 15 per cent each.
  • Under Project Unnati, of the 116 initiatives identified across the major ports in a bid to enhance their capacity by over 100 mtpa through efficiency improvements, 93 projects have been completed as of June 2019, unlocking capacity of over 80 mt.
  • Ports are exploring new business areas to diversify their portfolio and reduce business risks, with roll-on, roll-off and liquefied natural gas terminals, smart port cities, cruise tourism, and port-based special economic zones emerging as new areas of growth. Given the country’s strategic location on the international trade route, it can also offer ship repair and maintenance services to ships plying from the west to the east.
  • On the IWT front, there has been a substantial increase in cargo transportation after the declaration of new national waterways (NWs) in 2016. During 2018-19, 72.31 mt of cargo was transported on the operational NWs, a growth of 31 per cent over the previous year. Meanwhile, under the Jal Marg Vikas Project, being implemented for capacity augmentation on the Haldia-Varanasi stretch of NW-1 at a cost of Rs 53.69 billion with the technical and financial assistance from the World Bank, projects worth around Rs 18 billion have commenced after statutory clearances, as of July 2019. Also, development activities have started on 10 NWs of the 36 NWs that have been found to be technically viable (of the total 106 declared NWs).
  • India’s overseas seaborne trade has grown appreciably over the years; however, the carriage of overseas cargo by Indian ships has declined to just 6 per cent at present from 40 per cent in the late 1980s. The country has a meagre 1.13 per cent share in global tonnage. Nearly 41 per cent of the fleet is over 20 years and 13 per cent is 16-20 years old.

Outlook

  • In the past four-five years, the government has announced a number of supportive policy measures such as amendments in the model concession agreement, cabotage relaxations, new draft guidelines to reduce tariff disparities between major and non-major ports, etc. Several initiatives to promote the domestic shipping industry have also been announced.
  • These policy measures along with the launch of Sagarmala have brought back the much-needed optimism and confidence in the maritime sector. The government has given a strong push to port modernisation, mechanisation and digitalisation, with a number of ease of doing business initiatives, and this augurs well for sector growth. The revamped port community system (PCS), PCS1x, is expected to connect and provide real-time information to stakeholders on a single platform. Other key measures for port modernisation include the introduction of web-based e-forms and direct port delivery, installation of container scanners and radio frequency identification-based systems for gate automation, digitalisation of land records, launch of a single-window interface for facilitating trade, and integration of more seaports with the PCS. Steps are also being taken to create green and sustainable ports. A number of agreements are being signed with foreign countries in the areas of technology transfer, research and development, maritime cooperation, etc.
  • Another area that affects the growth of the Indian port sector is connectivity. Though a number of initiatives have been taken to improve connectivity from the hinterland to ports, especially in the past five-six years, it still remains the biggest cause for concern for the logistics sector as a whole, and ports in particular. India is the only country that has a very large number of inland container depots (ICDs) and container freight stations (CFSs) for handling container cargo. Movement of cargo to and from ICDs and CFSs has led to a significant increase in time and cost, which, in turn has raised the logistics cost.
  • Going forward, the timely completion of the dedicated freight corridor (DFC) is crucial for improving connectivity. Besides this, feeder routes to the DFC need to be put in place for ports to reap the full potential of the project.
  • Further, connectivity to east coast ports needs to be improved. Unless the government ensures that there are transit points to the east coast ports from the northern hinterland as is the case with ports on the west coast, the potential of the eastern coast cannot be adequately exploited.
  • Meanwhile, there are still legal and procedural delays as well as issues in terms of land acquisition and clearances affecting project execution. Financing is another key concern.
  • On the shipping front, there is a need to augment Indian tonnage and increase the quantity of overseas and coastal cargo carried on Indian ships. Shipbuilding and ship repair are other areas that require immediate attention, given the huge untapped potential.
  • Overall, the successful and timely completion of Sagarmala projects can be a game changer for the maritime sector. With the focus on port modernisation, development of new ports, improving hinterland connectivity, and promoting coastal tourism and coastal community development, the programme covers all possible areas to facilitate multidimensional growth and take the sector beyond its traditional role.
  • However, execution will be key. Given the large number as well as wide variety of projects, along with the massive investments to be sourced from different agencies and the need for effective coordination between the central and state governments, the actual implementation of projects could take more time than targeted. This can be gauged from the fact that since Sagarmala’s launch in March 2015, about 70 per cent of the projects are still at the feasibility or preliminary/planning stages.
  • To conclude, the outlook for the ports and shipping sector is positive and opportunities for stakeholders are abundant. Though there is still need for government support, both on the policy and regulatory fronts, the vision for the sector appears to be well laid out.

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