Signs of Recovery: Maritime sector trends and outlook

Maritime sector trends and outlook

The Covid-19 pandemic resulted in a series of events that caused turbulence in the already choppy maritime waters. Further, the resulting crisis was so intense that its ripple effect was felt during the entire fiscal. To put things in perspective, while cargo throughput at major ports registered a year-on-year loss of 4.6 per cent (2020-21 over 2019-20), at non-major ports it fell by 4.9 per cent.

Howbeit, with the phased easing of lockdown restrictions, the port sector gradually came out of the crisis situation. As a result of this, cargo traffic at Indian ports started gaining momentum from June 2020 onwards. With the sector witnessing green shoots of recovery, Indian ports are expected to witness positive growth rates from the next fiscal onwards.

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

The trendsetters – Cargo traffic and capacity analysis

Cargo traffic at Indian ports grew at a compound annual growth rate (CAGR) of 2.43 per cent between 2016-17 and 2020-21, to reach 1,248 million tonnes (mt). Of the total traffic, the share of major and non-major ports has roughly remained the same for the past five years – around 55 per cent and 45 per cent respectively. Further, the growth has mainly been driven by non-major ports.

During the five-year period from 2016-17 to 2020-21, traffic at major and non-major ports witnessed a CAGR of 0.92 per cent and 4.34 per cent respectively. During the first three months (April-June) of the current fiscal year, the total traffic at Indian ports stood at 334.18 mt, of which major and non-major ports accounted for a share of 54 per cent (180.61 mt) and 46 per cent (153.56 mt) respectively.

As of March 2020, the capacity at major ports stood at 1,494 million tonnes per annum (mtpa) while capacity utilisation was quite low at 47.19 per cent. Ideally, the utilisation levels should be 70-75 per cent. However, there exist significant inter-port variations in capacity utilisation rates at major ports. While Deendayal port is overutilised, the ports of Kamarajar, Chennai, V.O. Chidambaranar, New Mangalore and Mormugao are highly underutilised. For non-major ports, the capacity during the period under consideration stood at 991.67 mtpa. Just like major ports, there exist interstate variations in the capacity levels of non-major ports.

Commodity-wise, the 3Cs – coal, crude and containers – dominate the cargo composition at ports, with a share of over 70 per cent at both major and non-major ports. In 2020-21, petroleum, oil and lubricants (POL) accounted for the highest share in total traffic at around 31 per cent, at both major and non-major ports. However, there have been significant changes in commodity composition at ports in the past five years. Containers have been reporting strong activity due to increasing trade activity while POL volume growth also continues on the back of rising demand.

Coast-wise, the share of west coast and east coast ports in the total traffic handled has remained almost the same in the past five years (2016-17 to 2020-21) – west coast ports handle the lion’s share of the total traffic (about 61 per cent). However, the share of east coast ports in the overall traffic handled at Indian ports has been slowly increasing. Ports such as Krishnapatnam, Kattupalli, Dhamra and Kakinada are witnessing significant growth numbers.

The government has also been taking the requisite steps to increase the share of coastal shipping in the total cargo handled at Indian ports. To put things in perspective, the share of coastal cargo in the total cargo stood at ~16.34 per cent (2014-15) at the start of the Sagarmala programme. As of 2020-21, as per the latest estimates available, the share of coastal cargo stood at around 22 per cent of the total cargo.

On the inland water transport (IWT) front, there has been a substantial increase in cargo transportation after the declaration of new national waterways (NWs) in 2016. Between 2015-16 and 2019-20, the cargo volumes transported through waterways increased from 41.53 mt to 73.64 mt, thereby posting a CAGR of 12.14 per cent. Considering the cargo movement by inland waterways (including national routes), the busiest of the routes are in the western and one of the most industrialised parts of the country – Maharashtra, Goa and Gujarat. With regard to the NWs, NW-1 witnessed the maximum cargo traffic.

The Sagarmala programme seeks to reduce logistics costs for export-import (exim) and domestic trade with minimal investments for infrastructure. It is touted to be the game changer for the maritime sector due to its focus on port-led development. As of August 2021, there are 802 projects with a total investment of Rs 5.52 trillion under the programme with a completion deadline of 2035. Of these, 172 projects worth Rs 882.35 billion have been completed, 235 projects worth Rs 2.16 trillion are under implementation while the remaining 395 projects worth Rs 2.48 trillion are at various stages of development.

The Jal Marg Vikas project, one of the key projects in the IWT segment, has also been progressing quite well. As of June 30, 2021, the project had achieved physical progress of about 43 per cent and financial progress of about 41 per cent. It is expected to be completed by December 2023. Meanwhile, the government has been undertaking a plethora of initiatives to augment the share of coastal shipping in the overall modal mix of cargo.

Covid-19 fallout – Setbacks and initiatives

The Covid-19 pandemic brought to the fore unprecedented challenges for the Indian maritime sector. It struck at a time when maritime trade was already experiencing saddled activity levels due to disruptions in international trade, coupled with poor domestic performance. A number of port operators were forced to invoke force majeure at their berths and terminals, thus bringing port activity to a standstill. From restrictions on vessel movement to shortage of workers, unclaimed import cargo lying at ports, increased waiting time, and additional delays due to adherence to physical distancing norms, among others, the pandemic has had serious repercussions on the sector.

In view of the crisis, the government announced a plethora of initiatives to lessen the impact of the pandemic. From a relief package to reduce the burden on public-private partnerships to extending free storage time, waiving late fee, reducing pilotage and berth hire charges, not imposing container detention charges on exim shipments, the Ministry of Ports, Shipping and Waterways extended all kinds of support. Even customs authorities were quick to respond to the changed requirements. They underwent a major technological transformation to adapt to the changed requirements. The key initiatives taken by the customs department were electronic communication of PDF copies of bills of entry, issuance of e-gate passes, clearing goods on the basis of acceptance of electronic country of origin certificates instead of physical certificates, etc.

While the traffic handled at both major and non-major ports was affected due to Covid-19, the extent of cargo contraction started witnessing a reduction from June 2020 onwards, suggesting a recovery in the country’s external trade. During April-June 2021, cargo traffic registered a year-on-year increase of 26.5 per cent and 30 per cent at major and non-major ports respectively.

Future outlook

The Covid-19 pandemic laid bare the vulnerabilities of the maritime sector. From extreme disparities in the adoption of technological initiatives to heavy reliance on roads for cargo transportation (and a meagre share of coastal shipping and IWT in the overall modal mix), high charges as compared to neighbouring ports, significant interport variations in capacity utilisation rates, etc., the pandemic accentuated long-ignored issues. However, the country is well placed to take advantage of the realignments in global supply chains currently under way. Therefore, self-reliance in the true sense or Atmanirbhar Bharat will be the key in becoming an export-driven economy. Digitalising business processes, creating single-window clearance systems and developing user-friendly interfaces would form the foundation of this large transformation. According to credit rating agency ICRA, the pace of recovery of the port sector will be contingent on the pace of recovery of the domestic industrial sector and the global economy. Further, factors such as changes in the global supply chain pattern during the recovery phase will have an impact on the cargo profile.

Going forward, the needs and requirements of the sector would include reducing logistics costs and facilitating export-oriented manufacturing, improving performance and capacity at par with international standards, improving last-mile connectivity, increasing cargo movement through coastal shipping and inland waterways, increased digitalisation of port operations, and the development of deep draught ports.